Want to sell home to tenant, need a win-win for both

[Aaron Wyssmann]

I bought a house with some tenants who were on a lease with an option to purchase. In talking with them about their purchasing the home I found out some information as to why they did this option in the first place.  The backstory doesn't need to be mentioned here but basically, they have some debt from back during the 2008 crash that the only way to clear it will be for them to file bankruptcy or so he thinks.  In learning more about his past there is no way they will ever be able to get financing to actually purchase the home.  I know this tenant personally as he now works for my remodeling company.  I simply want to be able to finance the property for him and his wife.  

The purchase price according to the lease was $115,000, they paid a $1,500 option fee and the lease stated that they would get credited $200 per month for each month rent is paid on time.  They have paid rent for 16 months ($3200 credit). 

My loan APR is fairly low currently at around 3.5% but it is variable.

My initial thoughts are to do a contract for deed with the following terms:

20 year term

$110,300 principal

6% APR that can be adjusted based upon my rate????

Trying to create a win-win here for myself and for him.  Is there a better option?