Is borrowing money to buy a nice house a good idea?

Save most of your deposit and borrow more.  Most lenders won't loan less than $75,000.

Work out your rent to a landlord for 30 years plus inflation. What do you get at the end of it, ? Nothing.
Most properties increase in value over time so you will make a profit , plus you can alter it to your liking.
UK

then buy a cheaper house that you can pay out right if you don't want to have a loan. 

If you have to borrow in order to make a down payment it's not sensible to buy what you're trying to--it's obviously too expensive for you. You should NOT borrow to make a down payment on a house. That will mean you have TWO loans to pay back instead of just the mortgage. 


Buy a cheaper house that you do not have to borrow to buy. 

I'm guessing that at least 90% of all first time home buyers have to borrow to get their first home. Ver few people have the cash to just buy it outright, at least for that first home. Don't worry about it, take out the loan and pay it off as you can.

No one can possibly say if it's a good idea or not, without knowing details of your financial position such as income, expenses, debts besides a mortgage, and so on.

When you compare to rent its a good idea if you plan to be there awhile.

You may find it hard to borrow such a small amount.