First-time homebuyer – should we buy a condo/townhouse or single family home in our market?

My fiancee and I (both mid-late twenties) have been actively searching since November to purchase our first place after living in a townhouse for the last 2.5 years. Unfortunately, our market is extremely hot (Bozeman, Montana) and it doesn't show any signs of letting up with new people moving here every day and record-setting population growth.

Our dilemma: we have always wanted a single-family home since we have two dogs and rentals are hard enough as-is, let alone ones that allow pets. However, we recently received a notice from our landlord that he is selling his current home and close in early September and move into our unit, giving us very little time to find something. We do have backup plans and friends that have offered us places to stay and store our stuff, so not a huge deal.

With that said, should we continue to be picky and go for a single-family home that might be slightly above our budget (possibly needing a roommate), or just settle and purchase a condo or townhouse? We would then hope to purchase a home within 5 years and rent the condo. We do have 20% down and will be financing with a conventional loan if that makes any difference.

Any help or advice would be extremely appreciated.

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