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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.

What is an arm's length transaction?

In an arm’s length transaction, the property has been listed on the open market for a sufficient period, allowing for a fair assessment of market interest and conditions.

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?

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