Seller financing means the person selling the house also lends the buyer part of the price. The buyer takes a deed at closing and signs a promissory note back, and the seller holds a lien until it is paid. It is not exotic and not a loophole. It is a private mortgage, documented in Virginia with the same two instruments a bank uses.
It comes up in three situations here. Property a lender overlay will not touch, common with raw land, older farmhouses and homes on well and septic in Goochland County and Powhatan County. A seller who owns free and clear, wants income and does not want the whole gain in one tax year. And a creditworthy buyer whose file a bank will not read, such as someone self-employed two months short of a two-year history.
Where it shows up in this market, and why
It is a tool for the corners of the market where conventional underwriting is awkward, mostly the outer counties, where lots are bigger and comparables harder to defend.
| Area | Closed sales | Median sold price | Median days on market | Months supply |
|---|---|---|---|---|
| Richmond Metro | 871 | $450,000 | 22 | 1.8 |
| Hanover County | 107 | $510,000 | 24 | 2.3 |
| Goochland County | 33 | $688,702 | 30 | 2.7 |
| Powhatan County | 24 | $551,975 | 19 | 3.5 |
| [DATA NEEDED: median price per square foot, August 2026, by area] | ||||
Read the counts before the medians. Goochland County closed 33 single-family detached sales that month, Powhatan County 24. A median built on two dozen transactions moves a long way on one odd sale, and an appraiser in that thin a data set has fewer defensible comparables. If you are shopping this lane you are looking at acreage listings around Richmond.
Two structures, and only one protects a Virginia seller
A purchase-money deed of trust transfers title at settlement. The buyer signs a note, and a deed of trust conveying the property to a trustee records right behind the deed. On default, the seller instructs the trustee to sell under the power of sale.
A land contract, also called an installment sale or contract for deed, keeps legal title with the seller, who promises a deed once the buyer has paid in full. Often nothing is recorded in the buyer name at all.
| Issue | Purchase-money deed of trust | Land contract |
|---|---|---|
| When title moves | At settlement | After the last payment, years later |
| Remedy on default | Trustee sale under a defined statutory process | Unsettled. A buyer with real equity may be treated as an owner, forcing foreclosure anyway |
| Public record at closing | Deed and deed of trust both recorded | Often nothing recorded, exposing the buyer to the seller judgments and liens |
| Title insurance | Standard owner and lender policies available | Hard to insure in the usual way |
| Payoff | Certificate of satisfaction recorded | A deed must be delivered years later by a seller who may have died |
Row two is the whole argument. Sellers sign land contracts believing a default lets them cancel and keep the payments. Once a buyer has paid down a real share, that assumption is what litigation is made of. The deed of trust path is more predictable and keeps the deal inside the normal settlement process, with the usual cast at a Virginia closing table and the same owner title policy a financed buyer would receive.
What the note has to say
The note is the debt; the deed of trust is only security for it. Sellers put all their attention on the lien and then sign a one-page note that leaves the real terms to argument. State the principal and annual rate; the amortization term and payment, which are not the maturity date; the due date, grace period and late charge; default and acceleration language; the balloon date and amount, or a statement that there is none; prepayment terms, since silence means free prepayment; whether taxes and insurance are escrowed; and who pays collection costs.
What the deed of trust has to say
Section 55.1-316 of the Code of Virginia supplies a permissible short form: grantor, trustee, property description, a description of the debt secured, and whatever covenants the parties agree on. Two requirements are easy to botch and both hurt later.
The trustee. Under Section 55.1-317, an individual trustee must be a resident of the Commonwealth and an entity trustee must be organized under Virginia or federal law. That section also requires the document to state the trustee full residence or business address, street address and zip code included, and that address governs every notice to the trustee. Naming a brother-in-law in Maryland is a problem you find at the worst moment.
The default covenants. Section 55.1-320 fills gaps unless the document says otherwise. It deems the borrower to covenant to pay taxes and assessments, keep improvements in tenantable condition and commit no waste. It lets the beneficiary advance money to protect the lien and add it to the secured debt. It permits appointment of a substitute trustee whether or not the document grants that power. And for owner-occupied residential property it bars a trustee sale without an affidavit confirming the required pre-sale notice reached the owner. Note the opening line of that section: a deed of trust is in the nature of a contract, construed according to its terms. Whatever you actually want has to be written down.
The due-on-sale problem
If the seller still owes money, that existing deed of trust almost certainly contains a due-on-sale clause: transfer without lender consent and the balance becomes payable on demand. Seller financing transfers the property, the deed goes on record at the circuit court clerk office, and the homeowner policy gets rewritten in the new owner name, which is a common trigger. The seller is then personally liable on a callable loan secured by a house they no longer own.
Three ways out, best first. Pay the existing loan off at settlement from the buyer down payment and carry a clean first. Carry a small second behind a new institutional first. Or, where the loan is assumable, have the buyer assume it with lender consent and carry a second for the equity, covered in our guide to assumable mortgages in Richmond. Hoping nobody notices is not on the list.
Balloon terms, and the arithmetic nobody runs
Most seller notes amortize long and mature early. Take a realistic local second: the buyer pays the August 2026 Richmond Metro median of $450,000, puts 10 percent down, takes an institutional first, and the seller carries $90,000 at 7.0 percent amortized over 30 years, balloon at the end of year seven.
Monthly principal and interest: about $598.77.
Total paid over 84 months: about $50,297.
Principal retired in those seven years: about $7,968.
Balance due on the balloon date: about $82,032.
Seven years of payments, about fifty thousand dollars out the door, and the buyer still owes roughly 91 percent of the note in one payment. That is not an argument against balloons. It is the reason the balloon date has to be set against a refinance plan the buyer can describe, and the reason the note should say what happens if an extension is requested. Run your own version on our mortgage calculator before agreeing to a term.
Who services the loan
Someone has to collect the payment, split it between interest and principal, track the balance, verify taxes and insurance were paid, and produce an accurate payoff years later. A third-party servicer charges a setup fee and a small monthly amount, and produces the records that settle any dispute. Self-servicing means a dated ledger, a separate account and written notice of every late payment. Escrow deserves a decision, not a default: an unpaid county real estate tax lien outranks the seller deed of trust, and Section 55.1-320 only lets the seller advance the money after they find out.
The federal overlay: Dodd-Frank, the SAFE Act and ability to repay
Federal law does not ban seller financing. It limits how often an individual can do it on owner-occupied residential property before being treated as a mortgage loan originator, and it puts an ability-to-repay duty on any creditor. Both exclusions live in 12 CFR 1026.36, which the Consumer Financial Protection Bureau administers.
One property, 1026.36(a)(5). A natural person, estate or trust financing only one property in any 12-month period, owning it and taking it as security, that did not build the residence there in the ordinary course of business, where the schedule does not produce negative amortization and the rate is fixed or cannot adjust for at least five years subject to reasonable caps.
Three properties, 1026.36(a)(4). Any person financing three or fewer properties in a 12-month period on the same conditions, where the financing is fully amortizing, the rate is fixed or adjustable only after five or more years against a widely available index such as US Treasury securities or SOFR, and the person determines in good faith the consumer has a reasonable ability to repay.
Read that last clause twice. Ability to repay is built into the exclusion itself. Separately, a person who regularly extends consumer credit is a creditor, and 12 CFR 1026.43(c)(1) bars a creditor from making a covered loan without a reasonable and good faith determination, at or before consummation, that the consumer can repay it on its terms. On the state side, Section 6.2-1701 of the Code of Virginia requires a license to engage in the business of a mortgage loan originator and lists the exemptions, including individuals performing only real estate brokerage activity. That chapter is Virginia implementation of the federal SAFE Act framework.
Translation: carrying paper once on the house you lived in is ordinary. Four houses a year is a business with a licensing problem.
Price the house before you decide how to finance it
Every number above starts with the sale price. Get that wrong and the note amount, the balloon and the structure all sit on a guess. Ask us for a free home valuation: a written opinion of value built from closed comparable sales for your street and locality, plus your county months-supply figure, so you can see whether carrying paper buys a faster sale or a slower one at the same price.
Before you agree to carry paper
- Confirm the existing loan can be paid off at settlement, or get lender consent in writing.
- Search title on the buyer, not only the property. Judgments attach the moment they take title.
- Set a down payment large enough that walking away hurts. Three percent does not.
- Name a Virginia-resident trustee with a full street address and zip code, decide escrow in writing, and name the servicer in the note.
- Set the balloon against a refinance plan, not a round number, and have a Virginia real estate attorney draft both documents.
Seller financing solves a real problem in the thinner parts of this market, from Hanover farmettes to Powhatan land deals, by moving risk from a bank onto a person. Price that risk deliberately or decline it. We will lay both paths out side by side when you list with us.
Frequently asked questions
Can a Virginia seller finance a house that still has a mortgage on it?
Yes, but it is risky. Almost every institutional deed of trust has a due-on-sale clause letting the lender call the balance when title transfers, and the deed is recorded publicly. If the loan is called and the buyer cannot refinance, the seller is liable on a defaulted lien against a house they no longer own.
Does a seller need a mortgage loan originator license in Virginia?
Not in most one-off cases. Section 6.2-1701 applies to individuals engaged in the business of loan origination, and Regulation Z excludes seller financers at 12 CFR 1026.36(a)(4) and (a)(5) when the volume and loan-term tests are met. One property in 12 months, no negative amortization, and a fixed rate is the cleanest path.
What interest rate do Richmond sellers charge on a carried note?
There is no published rate series for private seller notes, so any average would be invented. The rate is negotiated and usually sits above the going conventional rate, because the seller takes credit risk a bank would not. The amortization schedule and balloon date matter more than the headline rate.
How fast can a seller foreclose if the buyer stops paying?
Virginia uses a non-judicial trustee sale, faster than judicial states but not instant. Advance notice to the owner and junior lienholders is required, the sale must be advertised, and Section 55.1-320 bars a trustee from selling owner-occupied residential property without an affidavit confirming that notice. Budget months, and expect trustee and advertising costs off the top.
Can the buyer refinance or pay off early?
Yes, unless the note says otherwise, and most seller notes are freely prepayable. An early refinance is usually what the seller wants. If the seller wants protection against being paid off in year one, a prepayment provision has to be written in, because a Virginia deed of trust is construed on its terms first.
What happens to the note if the seller dies before it is paid off?
The note is personal property and passes through the seller’s estate, and the deed of trust follows the note. Record a clean assignment chain and keep the original signed note where an executor can find it. Virginia has a lost-note foreclosure procedure, but it adds affidavits, delay and legal fees.
Is rent-to-own the same as seller financing?
No. Under a lease with an option to buy, the occupant is a tenant and title has not moved. Under seller financing, the deed transfers at closing and the buyer owns the house subject to a lien. A defaulting tenant faces eviction, while a defaulting buyer has equity that must be foreclosed away.
What does it cost to record a purchase-money deed of trust?
Cost is driven by state recordation tax on the secured amount plus clerk fees, paid at the circuit court clerk’s office for the locality where the land lies. The figure scales with the note, so a $90,000 seller second costs far less than a $360,000 first. Agree in the contract which side pays it.
Still deciding? Request your free home valuation and we will put a written value opinion and your county months-supply figure in your hands this week.
This article is general information about Virginia real estate practice, not legal advice. Notes, deeds of trust and installment sale contracts carry consequences that depend on your facts. Talk to a Virginia real estate attorney before you sign one.
