As someone who did this a couple of years ago, I understand the difficulties of living in a smaller space. There's less storage, less space for furniture, fewer rooms . . . but for me it's been well worth it as I learn that less really is more. I like having less to clean and maintain, less "stuff" around me to worry about, and the new house really does feel cozy rather than small.
But there are a few things I've learned that I thought I would share with those who are going through or are considering going through a similar transition.
First, furnishings need to be flexible. That means the sofa/loveseat combo is probably not a good idea. If you still want a sofa, go smaller and have chairs instead of a loveseat. Or forego the sofa and simply have chairs surrounding a round coffee table. Two pairs of chairs or all four matching keeps the arrangement from looking too random. (And the mirrors help expand the space.)
Banquettes and benches make great space-saving seating options in the dining room. And if you haven't seen some of the great storage options available under beds, you're missing out! While there are lots of creative ideas for putting things under a bed, there are also some wonderful beds that have built-in storage underneath - and I'm not talking platform beds!
Then keep a few "rules" in mind to make space feel larger. Use one area large area rug (8x10) to ground the seating, and keep all other rugs out. Hang larger artwork pieces rather than groupings, especially of smaller pictures. Keep window treatments minimal. Use one large accessory rather than a few smaller ones. And while you may not be ready for a tiny house, before you know it, you'll be loving living small!