I would take the PMI option at lower down payment.

Lot of 401k loans also prohibit you from contributing to the account until the loan is fully paid. This effectively means you also lose any employer matches, IIRC.

This is really hard to provide more meaningful thoughts without knowing more details than you may be willing to provide. It will also definitely depend on your local real estate market, but ultimately nobody here can predict the future. For now, you need to set a hard budget first, inclusive of all long and short term goals, calculate from there how much you can comfortably handle on the mortgage, and plug in numbers into calculators with typical interest rates to see how much house you can actually afford, regardless of the preapproval amount listed on your lending letter. Play with the down payment amounts to see how much the monthly payment difference actually ends up being between 5%, 10%, 20% down, etc. Leave a bit of buffer for PMI for estimates below 20% down.

Some stuff to consider:

-You state single income, is your spouse planning on entering the workforce any time soon? If not, can you reduce paid child care needs?

-Sounds like you're public sector employee with pension, so are you still scheduled for any merit salary increases, or are you capped at "top step?"

-On the standard 30 year time frame, will the mortgage be paid off before you retire?

FWIW my median credit score was 804 out of the three bureaus to determine my PMI.

You're likely better off with a lower down payment with PMI. I know when I first started looking the estimates from Zillow and the like went way over on PMI estimates, something like 225/month and it ended up actually being 60/month, which is very little compared to the taxation and penalty on an early IRA withdrawal.

Worst case, maybe reduce contributions to the IRA temporarily for cash flow with the mortgage, but avoid withdrawal if at all possible, or better yet, tighten up your budget on other aspects if they aren't necessary expenses.