If you are getting a loan as a primary residence you must intend to occupy the property as your residence. if you buy and say you are buying it as your residence but the whole time you are planning to basically not live in it, that is  lying and could get you in trouble for mortgage fraud. you may not get caught, but if you do it is taken seriously, beside legal trouble lender could call the mortgage due if they found out you were lying.

I got approved for an FHA at $294K.

Do not rely on it for legal advice.

This would allow me to refinance the loan in my name, then I could pay off his FHA loan and legally rent out the home.

They do draws, so break it up into 3 draws. maybe a 5k initial deposit plus 2-3 draws with a 10% holdback until final permit is approved. 

Then sit with him at his kitchen table and draft your agreement.That's assuming that you're willing to do this without legal support or oversight. 

Hello All,I have recently began the pre-approval process for a 2-Unit and am interested in going with the FHA loan.

You better put this in place before you get in trouble and get sued, after...no point in closing the barn doors after the horses escaped.An LLC is a legal concept, with no tax advantage - you can have it treated as a disregarded entity for tax purposes, or a S-corp or C-corp (but you don't want to hold real estate in an S-corp or C-corp).If available to you, you should look into Series-LLC for the asset holding entity.

My realtor found it before it was even listed on the MLS and since i was already pre-approved, we put in an offer within 2 days.

Finally, when my offer was accepted, there were legal implications the took another 6-8 months to settle.