Ok random internet strangers, I'm looking for some guidance...

My husband and I are considering purchasing a home in the near future. We've always been renters and honestly don't even want to buy. We'd be perfectly happy renting forever. However, we want to be in one of two school districts and renting is very uncommon. We are currently in one of those districts, but only in a two-bedroom condo and with Baby #2 on the way we'd like to get a 3 bedroom. While I occasionally see 3 bedrooms for rent, I know we'd have a ton more choice if we bought.

So...how we do we even start? I don't even know how much we'd get approved for. Do we start at a bank to see what we'd get a loan for? Do we start with a realtor? We are very comfortable paying what we pay in rent now but I'm sure we would need to go up a bit. Another issue? 80% of our yearly rent is paid for through my weekly babysitting services (under the table). So our income on paper looks quite a bit less than it actually is.

Do we need a large down payment? I have read that many don't do the standard 20% anymore. We have a lot of $$ in IRAs, 401K and my husband's pension, but we don't keep a ton in just a standard savings account. We don't really want to take out of our very nicely padded retirement accounts. Or maybe we should? I feel so conflicted about the whole thing and it just doesn't feel "right." I don't want to watch our net worth suddenly plummet by taking on a mortgage.

Anyone in the real estate business have a bit of insight? Why is this so scary to us when everyone else is buying houses left and right?