Which document outlines the borrower's rights in the loan transaction?

The Loan Estimate is the correct answer because it is a critical document that provides borrowers with clear and detailed information about loan terms, estimated costs, and their rights during the loan transaction process. Under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), the Loan Estimate must be provided to borrowers within three business days of applying for a mortgage. This document allows borrowers to better understand what to expect in terms of payments, fees, and their rights, ensuring transparency and informed decision-making.

While the Closing Disclosure also informs borrowers about loan terms and final costs, it is primarily utilized before closing on the mortgage rather than outlining rights specifically. The HUD-1 Statement is an older form that details settlement costs and was required until it was replaced by the Closing Disclosure for most transactions. The Good Faith Estimate (GFE) is outdated and was mainly used before the integration of the Loan Estimate, which has now taken its place in providing borrowers with necessary disclosures about their rights and loan details.