we will be selling the house after 3-5 years
end up owing out of pocket if we try to sell it...
With those two lines, there are good chances you will end up paying out pocket regardless. The first 5-10 years of your loan you will be paying mostly interest anyways.
I would either (a) look for a nice apartment, while saving everything you can or (b) look for a house that is considerably less than $200k.
That seems like a lot of house for two people, of course not knowing the housing market where you live.