The best person to discuss this with is a mortgage broker. We *always* suggest that our customers speak to at least two, because there are different programs available depending on who you speak to. A good mortgage broker should be able to analyze all of the financial factors, and suggest some options - perhaps paying down or off some of the loans with the 20%, or even a program that might still allow you to buy as you wish. The consideration is how the numbers work over the next 5 - 7 years, depending on the scenairo you choose. It might be cheaper to pay off the loans, take the FHA with the PMI, rather than put the 20% in the house - it all depends on the interest rate you get and the overall cost.
The other option is to find an area you think you might want to live in, and rent there for a year, working on improving your financial situation. Why? Because the prices will come down further, meaning that the reduced price and lower payments might serve you better.