I can think of a reason to transfer the ownership out of your names and into a new entity, if you can do it. Your attorney is correct.
If your first home qualifies for gain exclusion as a principal residence, a sale of the home to an LLC or other entity will allow you to report a gain, and escape the tax on the gain. You would have had to use the home as your principal residence for 2 of the last 5 years. You could lock in the gain, and not have to pay any tax on it.
Converting the home to a rental means you will lose that exclusion, and likely face a substantial tax bill when you do sell it.
Selling it to a new entity likely means either a new mortgage on it or paying off the old one at closing. That is what I referred to earlier when I asked if you could pull it off.
You also get a step up in basis in the new entity for depreciation
As for the new home, I am a believer in low cost, flexible financing. Since I believe interest rates will increase over your holding the mortgage on this home, I suggest the longest term you can get, 30 years if available. Prepay when you can to cut the overall tax cost, but retain flexibility if your income changes or if making payments is otherwise more difficult. That allows flexibility for prepayment, especially in the early years, and safeguards for the unexpecteds in life.
Thanks for allowing me to assist, and thanks from just Answer. I'm PDtax.