My wife and I are both graduates and practicing Catholics. We would have the chance to teach at the university and are drawn to Catholic intellectual community there. We have 3 boys (3, 2, and newborn) and I currently work as a physician on an island with a near-tropical climate (you may wonder why we'd consider moving back!).
Aside from the university itself, what do you like about living there? House prices (at least near the university) have gotten really high - and we know someone who was shot just off Notre Dame Ave. Winter weather is terrible. What keeps you there? What is there to do for young children in the winter time? How would you sell it to me? South Bend or Granger?
Foremost, if the job opportunity is great, you'll make it work. You'll make anything work, if you catch my drift.
In regard to housing, I've never been to that area, maybe someone here can chime in, but are there any nicer homes within waking distance to Notre Dame's campus? The schools that I've attended or visited, generally, had very nice homes and established neighborhoods in the immediate vicinity of the universities. That, assuming it's an option, would be your best best, in my opinion.
If not, again, I've never visited the area, but I'd at least be looking at somewhere along the lake (just looking at Google Maps: Michigan City, New Buffalo, St. Joseph). That said, I'm the type that will always spend more (within reason) to avoid a commute / traffic. However, it may not be that big of a deal in that area.
Lastly, given your age, profession, and children, this may not be too big of a deal, but you'd need to ask yourself if you'd get tired of being entrenched in the "campus" and "college setting." Basically, I grew up in New Orleans -- not too far at all from Loyola and Tulane. New Orleans doesn't feel like a college town at all as there are simply so, so many other things to do and see. Ole Miss will be playing Tulane this year at Yulman Stadium in Uptown and you'll never even realize it. However, I attended undergrad at LSU, and I was extremely eager to get out of Baton Rouge and the campus setting my last year. The entire city, largely, is centered and revolves around it. It's what all the residents discuss (LSU athletics) and all events are centered around it. I needed a change of scenery (and Baton Rouge sucks). Personally, it would just get old to me...living in strictly a college town (Oxford, Athens, Clemson, and so on). But again, South Bend may not be solely a college town, and with young kids and whatnot, it may not be too big of a deal.