Seller second financing to tenants with low cash DP

[Daniel Seaton]

Hi all, I have a condo I'm planning to sell soon in Alexandria, VA near Amazon HQ2 in a very hot, low inventory neighborhood. The problem is I have tenants in place until June 2021 and they aren't interested in being paid an early termination fee to move out before the lease ends (I offered when mentioning to them my potential plans to sell). They did however ask about what price I'd be looking to sell at, which leads me to think they might want to purchase the place. They are a young newlywed couple and I don't imagine they have much funds for a DP, but the husbands mother co-signed the lease and I imagine she might consider co-signing a mortgage so I think they could qualify on a DTI basis with her. The problem would be the DP.

My agent has advised listing at 399,990, which I think I could get from an investor, but bidding wars are common in the neighborhood with multiple above-listing offers (I could see the place getting 425 based on recent sales), although I think that’d be less likely in my case since I wouldn’t be able to market to owner-occupants. I was wondering whether I might be able to put together an offer for the tenants where I took back a small (say 10k) mortgage, interest only for 5 years with a balloon payment, and sold it to them for 410k with them putting a Very small amount down. Would they be able to get a conventional mortgage under Such a scenario? Or do they themselves really need to put 3% of sales price into the deal to get conventional financing? 

Thanks for any suggestions/advice!