Definitely smaller! Do you really 'need' a big house? Obviously we all work hard & want to see results for that, but i think you'd be surprised at how comfortably you can live in a smaller house. Your kids won't know the difference, as long as they are safe and loved they will be happy anywhere. DP & I have a small 3x1 with a big yard which we plan to pay off within the next 5 years (mortgage under $250k). It's not perfect, there are things I don't like about it but it's in a great area, we really don't need that much space between the three of us, and most importantly it's OURS! We fix up little things whenever we can, and once it's paid off we'll either do the big reno and extend, or sell and buy the dream home. Either way we're still living comfortably with much less financial strain, and as far as DD is concerned she knows no different, this is her home and her safe place. Owning a home is great and all but it's important to live within your means and have that 'wiggle room' for if your circumstances (or interest rates!) change.