$200k down on $332k house denied fha loan. RMLO private loan???

[Mike Landry]

We have our primary house for sale and under contract for $332,000.  We just found out (10 days before closing date) the buyers where denied their fha loan even though they are putting down around $200,000.  They are self employed and as far as I know the issue was with their business debt/income.  They have excellent credit and cash available.

I have found a private lender that would be willing to write a private note at 6% interest up to $150,000 in first lien DOT. This is a family member of mine. We are not sure if the buyers will move forward with this yet but I am trying to get a handle on how this would work and the risks involved. We will use my Real Estate Attorney to draft paper work and an RMLO if needed. DOT state

So here are some questions I would love opinions on or education.  

1.  Being that it is NOT an owner finance (just a private lender), do the dod frank rules apply?  Specifically no Balloon payments.  Any reason there can NOT be an adjustable rate after 5 years?

2. RMLO to qualify the buyer.  If fha and conventional won't qualify them, why would an rmlo?  As the seller I will remove myself from their personal finances but my private lender will need to see their big picture.

3.  For those of you that hold notes,  what risk do you see here for the private lender.  They will be in first position secured with a Deed of Trust in Texas.  With that high of a down payment we feel risk is limited.  They would ideally require escrow and use a mortgage servicing company.

4.  Is it typical to have the borrower pay the attorney doc prep fees, rmlo fees, ect.  I figure yes as this is why you pay loan origination.  

5.  Is my private lender willing to be too generous?  Would YOU loan on those terms?  They would ideally not like the loan to go for 30 years but understand the dod/frank balloon restriction.  Thats why we where thinking of doing an adjustable after 5 years.  

They are in turn helping me by doing this transaction, allowing me to close on my next house....(which we stupidly put nonrefundable money down with a builder).  Thanks for any and all opinions.

Mike landry