We enjoy working with people we know – family, friends and professionals with whom we have an existing relationship. But when it comes to your VA Loan, buying a home from someone you know could impact your ability to utilize VA lenders!
When something of value is given in order to receive something else in value, the deal is considered either an “arm’s length transaction” or it’s not.
What is a Non-arm’s Length Real Estate Transaction?
A non-arm’s length transaction is one where the buyers and the sellers have some sort of family relationship or a third party has a business relationship that will be compensated if the deal closes. This relationship could influence the final price of the home, either by giving the buyer a price that is well below market or misrepresenting the terms of the loan. The VA considers parties that cannot conduct business with one another if there is a relative involved or a personal relationship with a third party such as a:
- Real Estate Agent
- Settlement Agent
If any of these parties has some sort of special relationship that does not appear to be independent of one another, it could fall under this consideration. The obvious might be a father selling to his son. Such a transaction will be heavily scrutinized as it relates to value and any compensation to third parties paid after the deal has closed. Other examples are a mortgage company employee buying a home from his boss, or a listing agent is selling a home for her daughter.
Any special or direct relationship between the buyers, sellers and certain third parties need to have a relationship that could not be affected by any current or previous relationship. There are ways to finance a property when such an event occurs but the rates and terms are less favorable and there are fewer loan choices.
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We want to know:
Have you ever bought a home from someone you already had a relationship with?