What is a non-arm's length transaction?

Non-arm's length transactions are purchase transactions in which there is a relationship or business affiliation between the seller and the buyer of the property. Fannie Mae allows non-arm’s length transactions for the purchase of existing properties unless specifically forbidden for the particular scenario, such as delayed financing.

Is a home sale a non-arm's length transaction?

A sale between friends, family or co-workers is considered to be a non-arm’s length transaction. With a non-arm’s length home sale, self-interest may not be the motivation – like a parent selling their home to an adult child. When a boss sells an employee their property, that’s also considered a non-arm’s length transaction.

Why do lenders scrutinize non-arm's length transactions?

Non-arm's length transactions may be scrutinized by lenders more heavily to ensure there is no fraud or misconduct happening. Most lenders have additional guidelines for a non-arm's length sale in order to protect themselves. How do non-arm's length transactions work?