Currently, my wife and I own a house that we purchased for $346,000 (4 beds, 3.5 baths) 7 years ago in California, which is now worth $606,000. The house is approximately 2,556 sqft. Recently, my wife and I came across a new home under construction, set to be completed early next year. This new property is roughly 1,600 sqft, with 3 beds and 2 baths.

We see this as a unique opportunity, especially considering how rare it is to find this price for new construction in the California market. We've decided to make the new construction our primary residence after the purchase. Initially, we bought the larger house 7 years ago because we had family members living with us at the time. Now, however, we no longer need that much space. Most importantly, we view this as a strategic move to grow our real estate portfolio. The plan is to move into the new home, live in it for 2 years, and then repeat the process of purchasing additional properties.

Additionally, while we continue to build equity in our current home, we plan to rent it out. The rental income will more than cover the mortgage and still provide positive cash flow, which is rare in the California market, making this a great opportunity for us.

However, underwriting has expressed concerns about us moving from a presumably larger home worth $606,000 to a smaller one worth $376,000. My loan officer agreed that providing a lease agreement before closing will help, but I also need to provide a solid reason for why we are downsizing to this extent.

What reasons can I give for making such a significant downsize? Is there anything specific I should be looking out for?