Colibri Real Estate 30-Hour Alabama Post License Practice Exam

What does variance testing range in closing costs mean?

1. Costs stated in the loan disclosure cannot exceed a set limit

2. Costs stated in the loan disclosure cannot vary by a certain amount on the closing disclosure

3. All closing costs are fixed

4. Closing costs are only estimates

The correct answer is: Costs stated in the loan disclosure cannot vary by a certain amount on the closing disclosure

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.