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.

So, what I'm say is this; if you fail, and acquire a lot of debt, and if you use your home as collateral then you can lose your home.Get it? 

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. 

Current house hold income is 140-180k/yr with minimal debt besides primary mortgage. 

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 short-term debt has me feeling a bit uneasy. 

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

My bank wants to charge me 6%...but it might be due to my debt amount and I don’t think shopping around would matter much if that makes sense

Don't forget to account for lawn care, legal fees for evictions, leases, etc.I would need 0% owner financing for this deal to work for me.  

In a foreclosure, you may have debt boot that you would owe taxes on.Mark