A Non-Arm’s Length Transaction: Buying A House From Someone Close To You

Aug 22, 2024

8-minute read

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Buying a house from a family member or friend can be a great option. You may already be familiar with the home, the closing process can be less complicated and you might get a good deal.

But it also may not be that simple. There are several factors to consider before you officially buy a house from a parent, aunt, uncle or another family member or friend. Buying a house from a parent or someone else close to you is what’s known as a non-arm's length transaction and can come with some important information to be aware of.

What Is A Non-Arm’s Length Transaction?

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. When a boss sells an employee their property, that’s also considered 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.”

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