What is a non-arm's length transaction?

When applying for a Federal Housing Administration (FHA) loan, a non-arm’s length transaction is known as “ identity of interest.” Real estate transactions fall into two categories: arm’s length and non-arm’s length. Arm’s length transactions are what most people engage in when they purchase a home.

What is a non-arm's length home sale?

A non-arm’s length transaction is when the buyer and seller have a personal relationship. 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.

What is an arm's length transaction?

Arm’s length transactions are what most people engage in when they purchase a home. Arm’s length transactions occur when two parties who don’t have a professional or personal relationship participate in a real estate deal and each side acts in their own self-interest. Purchasing a home from a stranger counts as an arm’s length transaction.