Creative Financing Options - Help!

[Wynn Williams]

I have a friend/neighbor that wants to sell me his house below market value so he can move back into an apartment and travel. Wife and I are both self-employed so acquiring a traditional mortgage is challenging based on our "on paper" income. He has a conventional mortgage at 3% and sadly it's not assumable. We can afford this, but getting a new loan at ~6.5%+ wouldn't be doable.

We currently own the house we live in and would rent it out upon moving into his house. We also own a rental property. Both of these are seller-financed on 30 year notes. We want to do this transaction so we can upgrade our living space, have another rental (our existing house), and eventually rent out the new house (his house) after we grow out of it.

What do you recommend? Can we seller-finance his house with a promissory note of some kind even though he still has a mortgage? Should we "rent-to-own" his property?