Closest home houses a Royal Engineer (7)
I believe the answer is:
nearest
'closest' is the definition.
('nearest' can be a synonym of 'closest')
'home houses a royal engineer' is the wordplay.
'home' becomes 'nest' (I've seen this before).
'houses' is an insertion indicator.
'royal engineer' becomes 're'.
'a'+'re'='are'
'nest' enclosing 'are' is 'NEAREST'.
(Other definitions for nearest that I've seen before include "Closest among relatives" , "Closest, being earnest" , "touching?" , "Most accessible" , "Rat seen (anag.)" .)