Seller Financing a Home Sale in Virginia: Doing It Properly

A seller who owns the home outright agrees to carry the financing themselves, and the buyer pays them monthly instead of a bank. Done properly this is a real transaction with a recorded deed and a recorded lien, and both sides are protected. Done casually it becomes the arrangement covered in our piece on land contracts, where the buyer has possession and no ownership. The difference is entirely in how it is papered.

The version that works

The buyer receives a deed at closing and becomes the owner, exactly as in any other purchase. The seller receives a promissory note for the balance and a deed of trust securing it against the property, which is recorded in the land records.

That structure gives each side what they need. The buyer owns the home, has a recorded interest, and builds equity. The seller has a recorded lien and, if the buyer stops paying, the same remedies any lender has. Both positions are visible in the public record.

What the note and deed of trust have to settle

The interest rate. The payment amount and schedule. The term, and whether there is a balloon payment at the end, which there usually is. What happens if a payment is late, including any grace period and late charge. Whether the buyer may prepay without penalty. Who pays the property taxes and insurance, and how the seller confirms they are being paid.

That last item is the one most often left out and it matters. If the buyer stops paying property taxes, the locality’s claim outranks the seller’s lien, and the seller can lose their position to a tax sale on a property they thought they were secured against.

Why the seller should insist on the same diligence a bank would

A seller carrying financing is a lender, and lenders check things. Title should be searched exactly as in any purchase. A title insurance policy protecting the seller’s lien position is available and worth having, the same way an institutional lender requires one. And the buyer’s ability to pay deserves the same scrutiny a bank would apply, because the seller is taking the credit risk personally.

Sellers sometimes skip all of this because the buyer is known to them. Familiarity is not underwriting, and the recorded position is what protects the seller when circumstances change.

What the buyer should confirm

That they are receiving a deed at closing rather than a promise of one later. That the title has been searched and any existing liens on the property are accounted for, because the seller’s own judgments and mortgages do not disappear. That the terms of the note are what was agreed. And that there is a realistic plan for the balloon payment, since most of these arrangements end with the buyer needing conventional financing.

Where it fits

Seller financing shows up most often on properties that are difficult to finance conventionally, on transfers within a family, and on rural land where a buyer has the income but the parcel does not appraise the way a lender wants. The family version has its own considerations, covered in buying a home from family. The commercial version is in seller financing on commercial property.

How we help

We run the title search, prepare and record the deed so the buyer actually owns the property, prepare and record the deed of trust so the seller is actually secured, handle the settlement and the funds, and make sure both instruments say what the parties agreed. We are neutral, so the terms themselves should be reviewed by each side’s own counsel before signing.

Common questions

What is seller financing?

The seller carries all or part of the purchase price instead of the buyer obtaining a bank loan. Done properly the buyer takes title at closing and the seller takes a promissory note secured by a recorded deed of trust.

How is it different from a contract for deed?

In a contract for deed the seller keeps legal title until the final payment while the buyer holds possession. In seller financing the buyer owns the property from closing and the seller holds a recorded lien instead. The second protects both sides better.

Should the seller get title insurance?

A policy protecting the seller’s lien position is available and worth having, the same way an institutional lender requires one. A seller carrying financing is a lender and should protect that position accordingly.

What happens if the buyer stops paying?

The seller has the remedies of a secured lender under the recorded deed of trust. That is precisely why the security instrument matters and why the arrangement should be papered rather than informal.

Can I seller finance if I still have a mortgage?

It has to be checked first. Most deeds of trust contain a due on sale clause allowing the lender to call the balance on a conveyance, and seller financing involves conveying the property. Confirm the lender’s position before structuring the deal.

Who pays the property taxes?

Whatever the documents say, and it should be stated explicitly. If the buyer stops paying taxes, the locality’s claim outranks the seller’s lien, so a seller should have a way to confirm they are being paid.

This article is general information about seller financing on residential property in Virginia and West Virginia. It is not legal, tax, or lending advice, and seller financing is subject to federal and state requirements that depend on the circumstances. Both parties should have their own counsel review the terms before signing.