Rent-to-own agreement on the side of rental agreement

[Brice Naylor]

I have a tenant for my house.  I am a first-time landlord.  The scenario:

The tenant is interested in a rent-to-own setup.  I would prefer a land contract, but the tentant does not have $5k to put down, which is the minimum I would like to have for a $129k house.  The best scenario I have come up with to keep us both happy is:

- Rent the house, so that I keep ownership vs/ doing a land contract where the tenant has ownership.  $1k down, and $1k/month as rent

- Draft a side agreement, where the tenant and I will both have a copy, stating that the deposit will go towards the purchase price when the tenant is able to get a mortgage in 3 years.  The side agreement will also have an amortization schedule based on 6% interest, and will state that the same amount that would go towards principle every year for a 30-year mortgage at 6% for $128k will be deducted from the purchase price in addition to the deposit when the tenant is able to get a mortgage.

Does anyone have experience with this type of side agreement?  I do not want to do a land contract and give the tenant ownership of the house without them being able to make a larger down payment, but I would like to work with them so that they are able to put the money they have spent while renting towards the purchase if and when they do buy.

Also, what are some preferred renter's insurance companies?

Thanks!