With that said... I've been hearing that an FHA loan would be the way to go. However they are not flexible like banks when it comes to the debt to income ratio... Is that true?
Many people who stretch themselves to buy a nicer home end up living paycheck to paycheck and end up with miserable lives and loss of sleep. Go with something smaller and less fancy and I promise you , in the end you will be so glad you did.
The $240,000 range is probably a stretch, but it depends on the rest of your situation. With a 3% FHA loan, figuring an estimate for taxes and insurance, your mortgage payment comes out to about 40% of your gross income. I have approved buyers with a high housing payment but no other debts when they've had good credit and a history of savings. But the question then comes down to whether this is a payment you can comfortably shoulder going forward. What kind of other debts do you have now? Are there going to be purchases like a new car you need to make in the future? Is your income trending up, or is it stagnant? Are there repairs or maintenence issues you will need to deal with in the new home?
It may be possible to qualify for the new home, but it still might not be the right choice. Run your numbers and see what kind of payment you can comfortably handle (include tax benefits) and that should help you back in to the size of home that is right for you.
If you need information on a good loan officer, contact me and I'll be glad to give you a couple of names.