Far better to have larger cash reserves.
For the most part, mortgage lenders are looking at your monthly payments (also known as your debt to income ratio). The total amount owed on all your credit obligations isnt really all that important.
The more savings you have the less risk you appear to be in their eyes. If you have enough to cover the downpayment + closing costs with some cash reserves set aside for emergencies, then you should have no trouble (assuming there are no collection accounts on your credit report) securing a mortgage.
You may also want to check out NACA (naca.com). Its arguably the best non-profit in the real estate industry. You'll save a ton of money by going that route as opposed to dealing with mortgage brokers or lenders. Although the process is somewhat lengthy, the savings you'll realize will make it all worthwhile.