Revised Plan

Here is a revised sketch, responding to your sketch and our phone conversation yesterday.

1. I actually moved the pantry all the way up into the garage. The kitchen felt too dysfunctional to me - lots of separated counters. I think something like this will give you better workspace (especially connecting the sink and stove with countertops). We talked about putting the pantry into the rec room area, but since you're going to build that out this summer, putting a pantry in there seems to chop up the room.

2. I lined up the elements: fireplace, sink, stove, etc. This will make the room feel 'right'. If things vary from this axis, it will feel less 'settled'.

3. A good sized rec room with the existing sliding glass door staying put. This room will feel nice, with the right windows.

4. Your garage pantry space. This is all we can get if the house is 5ft from the north property line (as the Hillsboro planner measured), and the setback is 20 ft.

5. A good sized master bedroom. If we're going to remove the roof framing on the south side, why not build out a full rectangle of space? There's enough space for a master bath on the south side, and the only awkward thing is that you need an egress window or door to the exterior. I showed a door. The closets are generous!

6. I always feel better with doors that are grouped together - that way we can put a solatube in the ceiling, bring in light, and not feel like it's a house with long hallways. Of course, that back bedroom has a long hallway, but we found it that way...

Model

Here's an animated model of the Hoffman House, showing just a slight change to the roof. I think the height of it is just fine for the interior - in fact, the slope looks like it will match very closely what the inspiration picture shows. Keep in mind that if we make the roof higher, the bricks on the chimney will have to be built up to maintain 2 ft. above the peak of the roof. This way, we incorporate a new entry space without disturbing the chimney.

The sun angles for this model are calculated for the summer solstice (June 21) in the afternoon. The model shows how effective the (e) overhang at the living room is. We can put tall windows in that room without much worry about solar heat gain.

Floor Plan

Here's what I recommend for the floor plan. My aim here is to achieve what the inspiration picture contains, and to minimize costs in other areas as much as possible. The following numbers are noted on the plan above:
1. 7x16 entry space allows front door to face the street. This also allows some room for entering the house gracefully. This can be built as a slab on grade, with a step up at the (e) framed doorway, or as a framed floor. I suggest leaving the (e) exterior wall in place (but of course changing the finish to drywall). Expand the (e) windows just a bit to fit better into the cadence of the new vaulted rafters, but just make them 'window' openings with sills and no glass.
2. I suggest leaving some of the walls in this area, so that a large coat closet for family use can be located here. A smaller 'guest' coat closet is opened in the entry space.
3. Build a 5 ft. framed opening, centered on the (e) fireplace between the living and dining rooms. This will be very similar to what the inspiration picture shows.
4. This dining room comfortably seats 8.
5. This is a generous space for a U-shaped kitchen with a large island. I think the little (e) bump-out can be eliminated... it doesn't seem to add much to the space. I suggest locating the new range against an exterior wall to make venting simple.
6. 20x25 living room. This is a large space. New windows to the west should fit in between the new rafters in the roof. The door should be located along this wall to keep circulation clean, and to allow more counter space in the kitchen.
7. The existing covered deck space is nice, and as you will see in the model, it shades the worst of the summer sun's rays. The sun angles on the model are taken in the afternoon on the summer solstice (June 21).
8. Make a 'landing' outside of the bedroom doors. This one is 6x8.
9. Keep the existing bathroom the same, just improve the fixtures and finishes. This will save money.
10. Put the laundry room here, with washer and dryer against the exterior wall. As there is already plumbing in this space, and the size is right, this should be another money-saver.
11. Existing bedroom to remain the same.
12. Existing bedroom to remain the same.
13. New parents' bedroom is 12x22. Locate glass sliding doors along the west wall where the existing high window is, to make the back porch a private space.
14. The parents' bath has enough space for a generous tub/shower unit, a toilet room, and double sinks. Alternatively, you may want to use some of this space for a new furnace.
15. The (e) deck should stay the same size: 11x13.

Roof Plan

The new roof area is shown - assuming a timber-framed roof structure, with a large ridge beam (the span from the south wall to the middle is about 25 ft.), and rafters at about 4 ft. on center. Tongue & groove decking over the rafters, with insulation and roofing above that. This system will involve pouring new footings, possibly in all 3 locations shown as posts on the interior, and also some exterior posts on the west side.

Inspiration Picture

This is what Joe & Kelly want to make of the main living space in the house.