What is the 10% tolerance rule in relation to the Closing Disclosure?

The 10% tolerance rule is an important regulation under the Real Estate Settlement Procedures Act (RESPA) which is designed to protect consumers from unexpected costs at closing. Specifically, this rule applies to certain categories of fees and charges related to the closing process, including title services, transfer taxes, and recording fees.

When the Closing Disclosure is provided to the borrower, it must indicate estimated amounts for these charges. Under the 10% tolerance rule, the actual fees at closing for these specific categories cannot exceed the amounts disclosed by more than 10%. This means that if the actual fees are higher than the initial estimates by more than that threshold, the lender must absorb the cost overage or provide a refund to the consumer.

This regulation is crucial for ensuring transparency in the closing process and for maintaining consumer trust, as it limits surprise costs that could arise at the time of closing, which can otherwise complicate the affordability and overall experience for the borrower.