A few thoughts:
First, sometimes life is hard and you need to give up on some efficiencies to preserve your sanity. When my kids were little, I had a whole year where I gave myself permission not to go to the gym and to order takeout a couple of times a week, because my brain was overloaded with all of the must-dos. Was it optimal? Absolutely not. But I was making over $200K/yr, so if the choice was taking a big salary hit to cut back and do all that stuff myself vs. throw some extra money at conveniences until I could get over the hump, it was a financial no-brainer.
Also, sometimes shit happens, and you have to spend money on stuff to make life bearable. Fans, air purifiers -- sure, it would be awesome if we didn't have global warming and horrible forest management and all those things, but we do, and shit happens, and isn't it great that you're in a financial position to be able to deal with it?* Yes, be careful that you don't build habits of just throwing money at problems, because there are always problems, and that one-time expense can quickly become part of your normal spending. But I wouldn't kick myself for dealing with a Wrath of God-level forest fire.
Now, to the house: you work at home. Both of you. It is eminently reasonable to want to live somewhere that will allow you to do that comfortably. It will make work more efficient and very likely save your marriage. That is not an unreasonable want; you have more of a reason to want a larger place than most people who buy a house (myself included). Do not discount your desires on this. There's a huge difference between "I want a larger space so I can have a quiet place to work WITH A DOOR" and "I want a larger space so everyone will be impressed with how much money I have" or "we had a kid, so now we need 4,000' and 5 bedrooms."
The key is to figure out how to get you want you need and reasonably want in the most cost-effective manner possible. What I would challenge is your assumption that "want a third bedroom for an office" means "need to buy a $550K-$600K house." Look at all your options, even the ones you have a knee-jerk negative reaction to. Rent a 3 Br apartment or house. Buy a cheaper house in the neighborhoods you like. Buy a cheaper house in a different neighborhood nearby. Look for a place farther out where it's cheaper. Buy a house with a rental unit to offset the mortgage. Etc.
The reason you do this is because it helps you put a name to the things you like and don't like and then prioritize them --
including your desire to FIRE. Right now, you have a bunch of things you have mentally identified as non-negotiable -- neighborhood, house size, house condition, type of housing, etc. And all of that adds up to $600K. And it seems reasonable, because you can afford it on your incomes, and what's the big difference between $500K and $600K anyway? Answer: it's about $400/mo. that you could otherwise be investing towards FIRE. So do the math on how much longer you need to work in order to cover that extra $100K. At this point, your job is to challenge all of those things that you are assuming are non-negotiable, pay attention to how much more of your life-energy you need to spend to have them, and then see if they really matter as much in that analysis, or if there is another option that can get you 80% of what you want at 20% of the cost. For ex., I like
@tamuaggie2011's point that you are prioritizing being by family, but you're probably really talking about getting together once a week or so, so how much would an extra 30 minutes travel really affect your life, if it allows you to get a great house for a lot less? Maybe that won't work for one reason or another, but that's the kind of analysis you should be doing of all of your options. You may end up right back where you are, with a $550K house in the neighborhood you want. But if you put in the work to figure out what all your options are, you'll at least have a lot more confidence that that is the right choice for you -- and you'll be doing it with the full knowledge of the work-years that that choice will cost.
When you do decide to move ahead, you don't need to wait for a 20% downpayment. Most first-time buyers don't have anywhere near that. I'd target 5%, try to roll closing costs into the loan, and then keep aside an extra $2-3K (minimum!) for all the things that are going to be wrong with the house that you need to change.** Even simple things like painting add up when you need to buy all the gear.
Finally: do
not cut back on your pretax savings. A house is fundamentally a lifestyle choice. Never, ever, pay for a lifestyle choice with your investments for your future. The house that you can afford is the house that you can save for, buy, and outfit with the money that is left after you put aside your FIRE money.
*AMHIK. You seriously do not want to know how much money I've had to drop on broken appliances this month, after we had already committed to getting the floors redone and trim finished. Let's just say it's a good thing we didn't take any big vacations this year.
**Our first house was new and had no blinds at all. Which we did not realize until the day we moved in. Took $1800 just to get cheap window coverings!
