Options for seller finance

[Cody Tanner]

I have a house that my renters want to buy. They don't qualify for traditional financing due to being self employed and a slightly too high DTI. I still owe on my mortgage so I was looking into doing a wrap mortgage, but I contacted my existing lender and they said they would not allow it.

My renters are suggesting we write up a contract where they make payments on the terms we agree to and then transfer the deed once all the payments are made. 

Has anyone ever heard of anything like this, or have another suggestion? 

If I did this I would cash flow 600-700 a month and would earn interest above my current interest rate. But would it be taxed as normal income? Once it was transferred would it be subject to gift tax? Also, It would lock up my equity for that entire time.