Your mortgage may have a "
due on sale" clause which would prevent you from using Seller financing. So you first need to determine whether Seller financing is even an option.
If it is (which I doubt), then there are two primary ways to go about providing Seller financing. One would be a "
purchase money mortgage" where you are essentially acting as a bank. The Deed to the property transfers to the Purchaser upon sale and you take back a mortgage for the financed portion. The Purchasers may be seeking Seller financing because they cannot qualify for a bank loan. If that is the case (and would they even tell you if it is?!), why would you want to provide financing to a high-risk borrower? Should they fail to meet their obligations, are you familiar with foreclosure laws in your state? There may be unique circumstances under which I would consider providing mortgage money, but I would generally not recommend doing so.
The second primary option, a "
Land Contract" (called by different names in different states), is one I have used many times, both as a Purchaser and a Seller. With a Land Contract it is essentially a contract to purchase a property whereby the Deed does not transfer until the contract has been paid off in full. It is slightly better from a Seller's viewpoint in that it is usually a bit easier to foreclose upon. Still, there are many downsides to entering into a Land Contract. It is more difficult to get rid of a Land Contract holder than it is to get rid of a non-paying tenant. You still remain as title-holder to the property, so if they default on the contract, you could suffer loss if they damaged the property (or if it burns down absent insurance). All liens which go against a house (such as water bills, property taxes, etc.) would be your liability if they failed to pay them. It can work out, but you need to consider the worst-case scenarios. Again, if they can't qualify for a bank loan, why would you want to enter into such a contract with them?
If you eventually do consider selling on a Land Contract, I would recommend using as high of an interest rate as possible/reasonable to encourage them to refinance as soon as possible. State law will usually regulate what interest rate you can charge. (In Michigan, the present maximum interest rate you can charge on these types of personal loans is 11%.) You might also want to make it a short-term Land Contract, with a balloon payment due for any unpaid balance--which would likely require them to get financing.
As a Seller, I've had some Land Contracts which have worked out fine...and I have had some which were absolute nightmares. It's not something to enter into lightly.
One last thing: if you do consider providing Seller financing, you should probably retain an experienced real estate attorney to assist you, even though you know someone in training.
EDIT: I would also encourage you to try to sell your house as opposed to renting it out. Landlords can have fun with bad tenants, but it's definitely not for everybody.
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