This scenario does not work for any investor. Investors are going to look at your credit just as any lender would. Poor credit usually indicates repayment is less likely. IF, and that is a big IF, an investor would even look at your proposal they would expect 20-25% down on your part on probably a three year note. Some unsolicited advice: find a credit repair professional. Work with them and solve the causes of your poor credit rating. Fix your credit, save a few bucks and get in the game.
I'd strongly suggest you rethink your methodology. What you're asking amounts to---in its fundamental form---mortgage fraud (if the "investor" takes out a mortgage loan on the property).
Instead, why not take the time to put your financial house in order with credit and your other finances and prepare the right way for the responsibility of owning a home? You can meet with a Licensed Loan Originator today to get prequalified and, if you're not qualified today, at least you'll get good feedback on an action plan so you can prepare the right way to become a Homeowner.
1) Credit does not matter to a certain point- seller financing by definition is really meant for those that are in the process of re-building their credit or have little credit. If you have collections, judgments, or child support issues then yea we have a problem. If you had a prior eviction OK probably not going to work, but in reality the standards used are not that much different than screening a tenant. Bottom line? Can you refinance in the next 1-3 years with traditional financing. I have found that the most qualified buyers for a rent-to-own OR contract for deed tends to be 18 months. This is without the exceptions like recent foreclosure or bankruptcy.
2) I have rent-to-own properties available right now for $5,000 bucks so I think the 20-25% might be a little inflated. Typically a rent-to-own will be 3-10% down payment, and a contract for deed will go 10-20%. The only time I start to see really high down payments is when the terms are very good. Since the credit is usually not there down payment and income really are used the most for "risk". The higher the down payment the better the terms, because you are seen as a less risky buyer to the investor. My program is 10% down.
3) I think less than 1% of all transactions is pretty ignorant as well. I am happy to admit that buyers and sellers who try to do this on their own have a very high added risk of not making it work. Seller financing by no means is an easy contract, and if you don't have at least an attorney review the documents you are adding risk. I also find that most buyers don't take the time to speak with a loan officer to have a game-plan. Contrarily to popular belief evicting or foreclosing on someone is not very profitable to Investors. The property is usually heavily damaged, there is loss income for minimum of 4 months, and there are attorney fees associated. The people that do this for a business are the ones who do it correctly. It is your responsibility as the buyer to make sure you are working with ethical people that follow the law and not people who are willing to scam you.
4) Lastly, the purchase price is agreed upon upfront. A realtor can usually give you a good estimate of value, but if you want a insurance policy pay for an appraisal. It is what the lenders use, and it will ensure you are not overpaying for a home. Secondly, it is suicide to do a CD or rent-to-own in a declining market. You are just setting yourself up for failure on a asset that is depreciating in value, and thus a very high risk of a low appraisal when you try to refinance. The whole POINT OF DOING this is that you are buying something that you can build equity into over the next 1-3 years, and from a practical standpoint living and buying a home now is a better choice for your family than renting. Seller financing is only meant to be a bridge-type loan that is very short term until you can get traditional financing.
As a rule of thumb your monthly payment needs to be 30% or less of your Gross income. This is to ensure you are not getting in over your head, and will help for the traditional financing standards. It does not look like you have much of a down payment saved up right now Michael, but hopefully I have given you some ideas and goals to work towards. I will also strongly suggest that you do start working with a loan officer on fixing the credit and getting the fiance' started on her credit. As I stated you need to do this anyways as part of buying a rent-to-own house. Loan officers will usually review your credit for no charge and help give you a game-plan for the next 12 months.