Have you been there before? If not, I know very well that it's hard to commit all that money to something completely unknown. Heck, I took baby-steps into Disney...did a one day trip to
Disneyland two years in a row while visiting my brother in San Diego, and finally went for a week. Which led to many more trips, to a first WDW visit that was 13 days long. And then I tagged the complete-unknown Universal onto it, making a 17 day trip!
But Universal was great, I promise.

My son is right in between your kids, he's 7 now, and he loved it all. I mean, he didn't go on any of the big rides, even the ones he could, but he still loved it. Rode Flight of the Hippogriff a few times with DH, then one morning when DH slept in, DS and I rode it 14 times in a row.

Loved the rest of the place, too.
If you want to stay onsite, look for the discounts. I've priced out several vacations and cannot get the package deals to actually BE a deal yet. The Loews Hotels site should give you the lowest rate for your dates, though you should also fill in APH to the discount code box, just to see if there's an Annual Pass rate that's good enough for one of you to upgrade to the AP. (which as mentioned above then leads to 15% off gate price tickets, which is better than the prepurchase price on Universal's site, and might be better than a discount place like UnderCoverTourist or Maple Leaf Tickets, etc)
That's exactly what we're doing during our upcoming trip. Which is, by the way, from 9/22-9/25.

First figured I'd do the "stay more pay less" type of deal, but then AP rates showed up and they were good. We stayed at Royal Pacific last time, and the rate someone else told you about is really good for that hotel!
In case you don't know, staying onsite gives you Express Pass plus for everyone in the room, through your stay. Could stay one night, but you'd get the EP for the day of check-in and check-out.
It is hard, though, to get it under 1K. We can't do it and we're just the 3 of us. Though I'm cheating b/c I just budget per day for food, not x for WDW and Y for Universal. Your trip report name intrigued me and I skimmed some of it, and know you're doing Deluxe Dining...so of course the way you're thinking of food for WDW is different than a daily budget.
Best of luck making this decision!!!!