Police characterized the killings as "execution-style," The Indianapolis Star reported. The newspaper said the children -- ages 8, 9 and 11 -- and the adults -- 22, 29, 46 and 56 -- were gunned down with an assault rifle.
Police were seeking Desmond Turner, an ex-convict, in the family massacre.
Turner, 28, reportedly served a prison sentence for criminal recklessness and gun and drug violations and was released on parole.
"We believe the assailant did not have a close relationship with these people," Deputy Police Chief Tim Foley told reporters at a news conference early Friday morning. "We're working on several motives."
Neighbors, who said four adults and three children lived in the house, called police after hearing screams and shots about 10 p.m. Thursday.
A relative of the people in the house arrived and, when she went to the door, was pulled into the building. "All of a sudden, I heard about 10 to 12 shots," the neighbor told the Star.