Tolerances (Loan Costs)

Updated 2026-05-17

Tolerances refer to the legal limits on how much actual closing costs can differ from the amounts disclosed to the borrower on initial disclosure forms. These limits are designed to protect consumers from unexpected and significant increases in loan costs between the initial estimate and the final settlement.

If any charges at settlement exceed the permitted tolerances, the loan originator or creditor may be required to cure the violation, often by reimbursing the borrower for the excess amount.

Tolerance Categories Overview

Loan costs are typically categorized into three tolerance buckets, determining the permissible variation between estimated and actual costs:

1. Zero Tolerance: Charges that cannot increase at all from the amount listed on the initial disclosure.
2. 10% Cumulative Tolerance: The sum of these charges cannot increase by more than 10% from the sum of the amounts listed on the initial disclosure.
3. Unlimited Tolerance / No Tolerance: Charges that can change without any limit.

Tolerances for Specific Disclosure Forms

The application of these tolerance categories varies slightly depending on the type of mortgage and the disclosure form used.

Good Faith Estimate (GFE) Tolerances (for Reverse Mortgages)

For Good Faith Estimates (GFEs), which are now primarily used for reverse mortgage applications, tolerance levels are outlined in 12 CFR § 1024.7 (part of Regulation X):

• Zero Tolerance Charges: These charges cannot increase at all from the amount listed on the GFE. If the actual cost exceeds the disclosed amount, the loan originator must reimburse the borrower for the difference.
  • Examples: Origination charge, transfer taxes, and the credit or charge for the interest rate (while locked).
• 10% Cumulative Tolerance Charges: The sum of these charges cannot increase by more than 10% from the sum of the amounts listed on the GFE. If the total of these charges at settlement exceeds the sum disclosed on the GFE by more than 10%, the loan originator must reimburse the borrower for the excess amount.
  • Examples: Lender-required settlement services (where the lender chooses the provider), lender-required title services and insurance (when using a lender-identified provider), and government recording charges.
• Unlimited Tolerance Charges: These charges can change without any limit.
  • Examples: Prepaid interest, property insurance premiums, and amounts placed in an escrow account.

Loan Estimate (LE) Tolerances (for Most Mortgages)

The Loan Estimate (LE), which replaced the GFE for most mortgage transactions under the TILA-RESPA Integrated Disclosure (TRID) Rule, also employs similar tolerance categories. These are primarily governed by Regulation Z (12 CFR Part 1026). The purpose of these tolerances is to ensure that consumers receive accurate cost estimates upfront, allowing them to shop for loans effectively. If actual costs on the Closing Disclosure exceed the permitted tolerance levels, the creditor is generally required to refund the excess to the consumer.

• Zero Tolerance Charges: These charges must be disclosed with zero tolerance for variation. If the actual amount exceeds the disclosed amount, the excess must be refunded to the consumer. (12 CFR § 1026.19(e)(3)(i)).
  • Examples: The creditor's origination charge, points, and fees paid to the creditor; the interest rate; charges for services provided by an affiliate of the creditor; charges for third-party services where the creditor does not permit the consumer to shop (e.g., appraisal fee if the lender requires a specific appraiser); and transfer taxes.
• 10% Cumulative Tolerance Charges: The total of these charges cannot exceed the disclosed amount by more than 10% between the Loan Estimate and the Closing Disclosure. If the cumulative total exceeds the disclosed amount by more than 10%, the difference must be refunded. (12 CFR § 1026.19(e)(3)(ii)).
  • Examples: Recording fees; and charges for third-party services where the consumer is permitted to shop, but selects a provider from the creditor's list (e.g., title insurance, pest inspection).
• No Tolerance Charges: For these charges, the creditor may charge more than the amount disclosed on the Loan Estimate if the original estimate was based on the best information reasonably available at the time of disclosure. These charges are not subject to a tolerance limit. (12 CFR § 1026.19(e)(3)(iii)).
  • Examples: Prepaid interest; property insurance premiums; amounts placed into an escrow account; and charges for third-party services where the consumer is permitted to shop and selects a provider not on the creditor's list.

Resetting Tolerances (for Loan Estimates)

"Resetting tolerances" refers to the process by which a creditor may use a revised estimate of closing costs, instead of the estimate originally disclosed on the Loan Estimate, to determine whether an estimated closing cost was disclosed in good faith. This process is crucial for compliance with the TILA-RESPA Rule and Truth in Lending Act (TILA) and Regulation Z.

Tolerances can be reset, allowing a creditor to issue a revised Loan Estimate, only under specific circumstances, known as a changed circumstance or other triggering event (12 CFR 1026.19(e)(3)(iv)). These events include:

• Extraordinary Events: Natural disasters, war, or other events outside the control of any interested party.
• Information Specific to the Consumer or Transaction: New information that was not relied upon when providing the original Loan Estimate (e.g., a change in the borrower's creditworthiness, a change in the property's value).
• New Information or Changes to Information: Inaccurate information provided by the consumer or a third party.
• Consumer Request: A request by the consumer for a change to the loan or settlement terms.
• Expiration of the Loan Estimate: If the consumer does not indicate an intent to proceed within 10 business days of the Loan Estimate being provided.
• Interest Rate Lock: If an interest rate lock occurs after the Loan Estimate is issued, a revised Loan Estimate must be provided no later than three business days after the lock date, including updated interest rates, points, lender credits, and other interest-rate-dependent charges.

Mechanisms for Resetting Tolerances

Creditors can reset tolerances using:

1. Revised Loan Estimate: If a changed circumstance occurs, a creditor typically issues a revised Loan Estimate. The revised estimate must be provided within three business days of receiving information sufficient to establish the changed circumstance.
2. Closing Disclosure: The 2018 TILA RESPA Rule clarified and expanded the ability of creditors to use an initial or corrected Closing Disclosure to reset tolerances. This rule removed the previous four-business-day limit, meaning a Closing Disclosure can now be used to reset tolerances due to a changed circumstance or other triggering event, regardless of the number of days remaining until Consummation (Mortgage Lending). The creditor must provide the Closing Disclosure reflecting the revised estimate at or before consummation and within three business days of receiving the relevant information.

Impact on Consumer Waiting Periods

While resetting tolerances allows for updated cost estimates, it does not automatically trigger a new three-business-day waiting period for the Closing Disclosure unless specific material changes occur. A new waiting period for a corrected Closing Disclosure is only required if:

• The Annual Percentage Rate (APR) becomes inaccurate.
• A prepayment penalty is added.
• The loan product changes from the loan product previously disclosed.

The ability to reset tolerances is essential for creditors to remain compliant when unforeseen events or changes occur during the loan origination process, ensuring that the final costs presented to the consumer are still considered to be in good faith.

Accuracy Tolerances for Finance Charge and APR

While open-end credit generally requires accurate finance charge disclosures with no tolerance, closed-end credit has specific tolerances for finance charge accuracy (12 CFR §§ 1026.18(d) and 1026.23(g), (h)). These tolerances may differ from those applied for reimbursement under agency orders.

Understanding these tolerance levels is crucial for MLOs to ensure compliance and prevent unexpected costs for borrowers.