Mortgage Loan Originator (MLO) Licensing Practice Test

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Which document is essential for outlining the terms of a loan and the related costs?

HUD-1 disclosure
Mortgage note
Loan application
Title abstract

The correct answer is: HUD-1 disclosure

The most essential document for outlining the terms of a loan and the related costs is the mortgage note. This document serves as a legal agreement between the borrower and the lender, specifying the terms of the loan, including the loan amount, interest rate, payment schedule, and what happens in the event of default. It clearly defines the borrower's obligations and the lender's rights regarding the repayment of the loan. While the HUD-1 disclosure historically provided a detailed accounting of all closings costs associated with a mortgage transaction, it is primarily focused on the settlement process rather than the ongoing terms of the loan itself. The loan application collects personal financial information but does not outline loan terms or costs. A title abstract pertains to property ownership and title history, which does not directly relate to the terms of the loan or its costs. Understanding the role of the mortgage note is crucial for both lenders and borrowers, as it encapsulates the financial obligations involved in the loan.