This would add about 3500 in insurance premium to your mortgage balance (you may be able to pay the premium up-front rather than roll it into the mortgage)With an insured mortgage, if you were to go with a 5-yr term variable rate product, you should be looking at an interest rate between 2.4 & 2.7%.  

Balance that with the fact that the lower the risk, the lower the likely reward..

I wouldn't sell your property in AZ as it is a potential rental hot bed and you can have a renter pay off the rest of your balance eventually.

Just so I can balance out my knowledge.

The bank issued a default judgement for an amount which still leaves some equity in the house, but it is set to go to auction in two weeks if the balance goes unpaid.

The $10k is the profit we would have if we cashed out through the note and we would have a total balance of $42k to pay off through the loan.lol I gave you a VOTE for the explanation of how the seller financing would work.

I was fortunate to have not taken the bait back in 2004 thru 2007 and get over leveraged on my primary home like so many of my neighbors, who lost houses in this market by the thousands, but as I begin my journey here in REI, you have to leverage to some extent to really get started, so I suspect its just a little bit of balancing act coupled with a little bit of savvy and a dash of good luck. 

Tony,There are many landlords sitting on big chunks of equity and with enough down they would privately finance the first position note for you.You have to be clear with them upfront that you still want a DEAL.In other words for financing they WILL NOT expect to stick it to you on above market rates and loan terms.A better solution is maybe to put 10% down and have the seller hold a short term 15% second.You just have to find the right seller at the right time.For some it's not all about the money as they have a ton already.Instead it's about selling for an okay price and getting rid of the landlord headache so they can do the things they want in life.The balance of time and money is hard.Many have a bunch of time but no money and then many have a bunch of money but no time.Hitting that sweet spot is the hard thing to do.

To put it in business terms, it will take time for individual Americans to rebuild their balance sheet and income statement following the collapse of their most valuable assets and the contraint on their cash flow from increased debt service and decreased revenue in many cases.

I would run the two options (sell/keep) through an appreciation calculator and see what the breakeven period looks like with your current balance/value.