Our family went through a somewhat similar situation about 5 years ago. Moved from 1,100 sq ft to 3,200 sq ft, although we had 4 kids at the time. Here are my thoughts:
1) kids can (and, IMO, should) share bedrooms. It was only when we had 3 boys sharing a 10x11 bedroom, with our daughter in bedroom #3, that things started to feel cramped. When it was only 2 boys and 1 girl, they all shared one bedroom, and it worked just fine. Granted, as they get older, it's good to give them a bit more space, but that's several years away.
2) layout and number of rooms is more important than overall square footage. We nearly tripled our floor space, but only added one bedroom, half a bathroom, and two living spaces. We love the layout of our bigger home, but we've found that once you hit 4 bedrooms and 2,400 sq ft, more square footage just gets you bigger rooms, rather than more functionality.
3) yes, you can afford it. That's not in question. The question is what are you willing to pay for?
4) our guest bedroom doubles as DW's craft room, and also where the baby takes naps. It only gets regularly used for one of the three :)
5) if your basement is finished and is included in the square footage of your house, then it's likely about the size of our home (our basement is not finished, nor included). Our family is now 8 people, and the 3,200 sqft is *plenty,* even though DW homeschools our kids.
6) your needs will change over time. Don't just look at your current needs, but as Secret Agent Mom said, think about where you'll be in 5, 10, or 15 years.
7) maintenance and ongoing costs: for us, maintenance is about the same--same number and type of appliances to break, HVAC systems, etc. Utilities will, of course, go up. We're in the Chicago area, and we average about $150/mo for electricity throughout the year (peaking in summer and winter) and about $100/mo for gas (peak in winter, almost nothing in the summer). As for taxes, you'll be paying about $22/day in property taxes.