need help for buyer to finance-good credit-bad debt to income

[Paolo Ruggieri]

All, 

I purchased an incredible rented deal one year ago... 75k purchase from motivated seller+ 5k works (basic requests from tenant that was not listened to for 2 years), valued 170k when I financed it 6 months after purchase.As soon as I purchased it, I got into a lease purchase agreement with the current tenant. Now that is time to buy, tenant can't qualify due to debt to income: he has 20k+ credit card debts that is not able to get rid of (he is paying interest every month, but has no extra money to pay principle down) and has 2 car payments ( I guess he could sell the cars in the period when he qualifies for the mortgage). tenant lived in the house 35 years! I really would prefer to sell it to him:

1. I do not want to kick out a person that is emotionally attached to the house and has been paying his bills for 30+ years

2.  If I would want to sell this house at market price in the open market I would need to probably put 30k into it + would lose money while is vacant, but if I sell it as is to the tenant as is I can get market price (or close to it), collect rent till the day of closing, no vacancy costs, no need to update anything (When I refinanced this house I realized that appraisers do not look at how good is the paint, how new is the carpet, they do not do inspections, how outdated is the design/look etc. ...)

He can probably find a way to put 3% down, but his current debt to income is terrible. he is a Veteran.

We (I directed him) tried with different mortgage brokers, but they all need his debt to be max 40% of his income....

His credit is fine... he paid everything on time... I think his credit is now in the low 600s because he maxes out debt limits... if he could pay off credit cards credit would shoot up and debt to income would go down... but he does not have ~25k to pull out of a hat.

I believe he would be ok with higher interest payments, he might be even ok with a balloon, I am ok helping him in any reasonable way, he is ok signing anything, he is ok paying above market rent if a portion that credited back towrds purchase price... and he is ok with any purchase price!... here are some solutions I thought:

1. get another investor and sell him the deal... Investor would get interested in a 8% return + a bonus if/when the guy buys the property.... I would sell the house for less than market value to an investor, but at least I get out with a good profit and tenant remains... how do I find such investor? Do I put it on MLS? What price do you think I could sell for a $1250 rent? What if I give it at $1450/mo rent out of which $200 go towards a $200k purchase price?

2. I ask tenant to leave the house (they offered to leave if I absolutely wanted to)... it would become a normal flip, would make decent money but would run some risks that tenant does not collaborate (+ risks connected to rehabs and to market) and I would feel bad that this old couple lives this house at this point in their life...

3. I pay for them the credit card bill and get them to sign a paper that allows me to put a second position lien on their house once they buy it... I see it as a huge risk... but could come out that I make money selling them the house + i collect high interest as the credit card company... (this is brain storming... I do not think I should go this way, but I welcome your comments)

4. I have seen several advertisement (also on biggerpockets) of people selling 250k line of credits through credit cards... i think they come with zero interest for 1.5 years.... and a 10% fee (or something similar)... they advertise it that the 250k can be used for anything... and that the person needs to have good credit...  maybe this would be a good solution? I am afraid to suggest it, because if it does not work out, maybe the tenant would sue me later? If I go this route... should tenant use it just to pay off his debts, or to pay cash for the house?

5. the very best solution would be to find a mortgage product that allows 60% debt to income for a veteran with a good credit score, with only 3% down (or I could finance down-payment with a second position mortgage)... I incur no risk and can sell at appraised value.

6. any other ideas????

thank you,

Paolo