Thanks for the extra information. I really appreciate it!
It definitely sounds like Hector is well trained and well socialized. Because of this, I suspect he'll adjust fine to sharing the house with a baby. Especially since he's crate trained, so he'll be able to escape when he's feeling overwhelmed.
As for the shedding...there is something you can do about that.
Some dogs are prone to shedding more than others and unfortunately the only thing you can really do is to brush them regularly to remove the dead and excess hair. One product that I really love and that works really well on long haired and short haired dogs is something called the Furminator.
You can find it at your local pet store. And there's more information on it here:
There's a video on how it's used here:
If you have a small dog like a Maltese or Shih-tzu (and many others), you can also have the dog professionally groomed into something called a 'puppy cut', which cuts their hair to about 1/4 inch all over the body, which cuts down significantly on shedding.
Bigger dogs, or dogs with a double hair coat like huskies or GSDs can go to a groomer as well and ask the groomer to strip out the undercoat as that's the one that does the most shedding.
I do think that you should attempt to have the dog in the house with you. Since he's shared a home with you for as long as he has, it's possible that he'll become destructive or upset. Dogs don't understand why they've been banished to the yard, so I think you should try getting him to not shed and see how it goes.