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Dream home or safe play?

First post so please dont kill me 😅

My wife and I (daughter on the way), are looking to get a home. We bring in 7k a month after taxes. The dream home costs $360k ($3100/month with all fees). The safe plays (haven't found a house yet) run between $240k-300k (between $2300-2700). The dream house is offering 5.99% interest for the loan and 15k towards closing costs (all we would have to pay is the Down-payment). I can pay the down payment for the dream home by pulling a 6k mortgage loan from my IRA (will have replenished with interest in under 2 years). We have DPA (with $7500 grant towards closing costs). However, i cant use DPA without raising the interest to 7.25%. Which brings the monthly payment from $3100 to $3400. With that information, I have 3 questions.

Should I pull from my 401k to cover the Down-payment and keep the 5.99% interest on the dream house? $3100 payment

Should we use the DPA on the dream home with the $7500 grant to only have to pay a couple thousand out of pocket for closing costs? But raise monthly payments to $3400 for 3 years until we can refinance if rates drop

Or, should we go with the cheaper home, while using DPA and the grant, to save money and upgrade in house later on down the road?

Thanks for the responses!

submitted by /u/Hollivan
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source https://www.reddit.com/r/RealEstate/comments/1dbr72l/dream_home_or_safe_play/
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