Wow, you need to stop for a minute, take a step back, and draw up a realistic monthly budget taking ALL spending into consideration. Please trust me--you do NOT want to buy a $370k house on a combined gross income of $120k.
Forget the blather that you were told about taxes. Your monthly payment will be your monthly payment, regardless of what you may or may not get back in taxes at the end of the year. Yes, currently you can deduct your mortgage interest to reduce your AGI (adjusted gross income), but that doesn't change your monthly mortgage payment, and it's only 1 element of your total financial picture. Not to mention that there is no guarantee that current deduction will continue, especially in light of the fiscal cliff negotiations.
Put together your monthly budget. Start with your incomes AFTER taxes, i.e., what you actually take home each month. Then deduct your monthly payments. Here are just some examples of things that you might be on the hook for each month:
Mortgage principle and interest+PMI+Escrow payment (escrow may or may not include all property taxes and homeowner's insurance)
All utilities (electric, gas, water, sewer, trash, etc. To give you a feel for it, I have a 2400sq ft house and these average a bit over $400/month).
Home owner's association fees
Telephone
Cell phones (x2 if you each have a cell phone)
Cable/TV/FiOS/Internet
Car payments
Car insurances
Gasoline
Grocery store/food
That's what I would consider the basics. Then you need to figure out how much you want to have available for routine "entertainment" - eating out, going to the movies, etc. Be realistic.
Then you need to budget for unforeseen repairs for both your cars and your house--experts recommend budgeting 10% of your housing costs, so I'd set aside at least a couple hundred a month. New shingles, new A/C compressor, new hot water heater, new furnace, replacement siding, repainting the porch and front door, etc.. are all costs that you WILL have to pay at some point, and the money has to come from somewhere.
Then plan to budget another couple of hundred for retirement savings.
What about kids? If you have or plan to have kids, you need to take that into account as well--kids are expensive, especially if they go to college.
Then you'll need to budget for buying routine "stuff" - new computer, new Apple toys, books, hobby stuff, electronics, etc. Not to mention furniture, drapes, blinds, and all the other boring house stuff that you'll need to buy--and eventually replace over and over again. I'd budget at least several hundred a month here too.
Once you add up ALL of that, it better not come to more than, say, 90% of your after-tax take-home pay, or you'll be in debt trouble before too long. If you want to be REAL safe, you could try to live on only 1 of your incomes, and save 100% of the other's. If not, you'll also need to fund some sort of emergency account to tide you over should one of you get laid off at some point in your career.
I hope that gives you something to think about. Again, from my experience (I'm 39 and have been a homeowner for 11 years), I wouldn't even THINK of buying a 370k house with your incomes. On combined incomes of $120k, I'd be more comfortable with a house around $250k, possibly less to be on the safe side in case of emergencies. And there WILL be emergencies.
Good luck.