I'd definitely move.
However, if I were you, I would be very hesitant about moving into a house that I would be sharing a block with my landlord... I would feel very uncomfortable about that. The other thing that would turn me off would be the driving DP to work... I had to drive my DH to work when my DS2 was a newborn and it was awful! And that was only whilst we were getting our 2nd car fixed. Some mornings I would practically tear my DS off me to take DH to work... I hated it so much and I was soooooooo relieved when we got the 2nd car back. Our other car is in getting repairs done now and I have been taking DH to work this past week and have hated it again, and DS2 is now 2yrs old.
Is there not any other, similar houses you can look at? I wouldn't let being a little further away from the hospital bother you... unless it was something like a hours drive or so.
All the best for your decision.