What's the expense ratio on the Wells Fargo funds, what do they invest in, and are they index funds or active funds? If they charge you an exorbitant expense ratio (compared to an equivalent Vanguard fund), or try to beat the market, then you might want to sell them and move over to a Vanguard index fund. If not, then you probably shouldn't take the tax hit of selling and buying.
At the moment, sadly, a Vanguard money market fund proves little better than a mattress, because interest rates suck everywhere for savers (as opposed to spenders). Vanguard's money market funds currently pay hundreths of a percent interest. For lower-risk-than-the-market investments, you can get better than that from a decent bank account; you still can get ~1% from a savings account with no hoops to jump through, or ~2% from a reward checking account with various hoops (that may not prove worth it).
However, you said you have some tolerance for risk, which gives you better investment possibilities. For the money you're saving for a house, you need access to it in 5 years, which actually makes you somewhat less risk-tolerant than when saving for retirement. How much flexibility do you have in timing? Can you afford to move 6 years from now instead of 5, if the market suddenly makes your savings worth less? If so, then you have a high risk tolerance indeed, and you could probably afford to put the bulk of your savings into something like VFIAX, Vanguard's stock index fund. On the other hand, if you have less flexibility in that 5-year goal, that increases your risk-aversion level, and you might prefer VBIAX, Vanguard's "balanced" fund, or (if *really* risk-averse) the aforementioned 1-2% bank accounts.
Remember that while your return on investment matters, your savings rate matters much more. Can you quantify "very frugal living expenses"? With a total gross income of $112k/year, if you could save 40-60% of your income, you'd have little problem paying *cash* for a house in 5 years, and not having to deal with a monthly payment, which would make it much more tolerable to no longer have your wife's additional income.
On a related note, how strongly attached are you to the idea of having kids next year, as opposed to, say, in 5 years? One way to think about that that paints a rosier picture: would you rather have kids *now*, even if that would significantly change your financial situation and make you retire significantly later, or would you rather retire early to your paid-off house and enjoy much more time with your kids? You should give both scenarios serious consideration before making a decision.
To elaborate on that, if you're prepared to lose $32k/year of your wife's income, you're also prepared to save an extra $32k/year starting now. Hopefully you're saving a lot more than that. If you can save ~$50k/year for 5 years, you could pay cash for a house in many parts of the country, and remain debt-free. How awesome would *that* feel, starting a family with *no house note* to worry about?