What does variance testing range in closing costs mean?

The concept of variance testing range in closing costs refers to the allowable differences between the costs outlined in the loan estimate and those ultimately reported in the closing disclosure. Specifically, it means that costs stated in the loan disclosure must not vary by more than a predefined amount on the closing disclosure. This testing ensures that borrowers are not faced with unexpected increases in costs at closing, providing them with a certain level of protection and transparency in the borrowing process.

This mechanism is crucial for maintaining consumer trust and preventing misleading practices in the mortgage industry. If the costs exceed the allowed variance, lenders may need to provide a new loan estimate or justify the changes, which helps ensure that borrowers are fully aware of their financial commitments before finalizing the loan agreement.

Understanding this concept is essential for real estate professionals to effectively communicate and manage client expectations regarding closing costs.