I am in the process of working out the same thing. I just brokered one for a buyer, and am now doing my own where I am the seller and I have an unrepresented buyer. This needs to be a win win for both sides, so we have a lawyer writing up the agreement. We used a lawyer for the one I just did. A lease purchase is so much like seller financing, I'm not sure the difference. For both cases, I used a reasonable interest percentage--6-6.25%, and set it up like a mortgage, with a fixed monthly payment. Following an amortization schedule, a varying amount goes toward principle which is credited to the buyer.
The buyer will want the deed in his/her name, with the seller having the loan/lien. Therefore the buyer is responsible for taxes, insurance, repairs, etc. The seller has the loan and operates as a bank. The buyer puts a down payment, mutually agreed upon by seller and buyer, generally lower that they would pay with a bank.
If the buyer defaults, everything they have paid toward principle is forfeited--just as with a bank. If the buyer doesn't default but is able to refinance in 3 years, all the money paid for down payment and toward equity/principle is credited to their 20% down, and the house is soon theirs.
I believe we'll be seeing more seller financing in the next year.
The important message: use a lawyer. Call me if you want to discuss this or have specific questions.
Vivian Olkin with Keller Williams in Chapel Hill