Why is the "Good Faith Estimate" significant?

The significance of the "Good Faith Estimate" lies in its purpose to provide borrowers with an estimate of potential closing costs associated with a loan. This estimate helps to promote transparency in the lending process by informing borrowers about the various fees and expenses they can expect when finalizing a mortgage or loan. By providing this information upfront, borrowers can better understand the financial implications of their loan and make more informed decisions. This transparency is essential as it helps to prevent surprises at closing and fosters trust in the lender-borrower relationship.

The other options do not correctly represent the primary function of the Good Faith Estimate. It is not limited to small loans, as it applies to a wide range of mortgage transactions. While it does not assess the borrower’s creditworthiness or indicate loan approval, its core function is to clarify anticipated costs, enhancing the borrowers' ability to plan their finances appropriately.