I feel like I post this in a lot of threads, but why do you HAVE to do X when you have kids? I have three kids in 2BR, 730 sqft. Surely you can make your current house work, quite possibly with no modifications at all.
When it comes to the new house purchase, are you big watersports people? That could be nice to have, but if it's scenery... As a parent, I'm not sure I'd want to worry about little kids on a lake.
Is it more bikeable? Does it have better parks/schools? Property taxes are lower rate despite the higher value, so I'm guessing you'd be changing municipality/school district.
I'm assuming you're new house numbers are 1800 P&I, 1800/12 insurance, 4000/12 tax for total monthly payment of 2283/mo.
Current is 1681. That's a net annual difference of 7200. 10 years compounded at 7% (monthly x173), that's $103,800.
At least for myself, that ~5 YEARS of my retirement budget just to have a bigger house for 10 years.
Do a cost/benefit analysis
PRO
location?
size?
lifestyle?
CON
extra monthly cashflow-->what that cashflow represents over time