What to do...?

Go for the two story. Financially things might be in a slump right now, but they will turn around and you will kick yourselves afterwards. Also, you might want to make sure that you get the place you are looking for to live in as opposed to sell. Look at your future needs for a home. Go from there. If you are going to move out in 4 years more bedrooms are not a big deal. If you are going to stay there for 15 to 20 years with kids and pets, then maybe you need to look at the 2 story.