@Don Nguyen - I think you need to ask them why.  30 year fixed with 25% down on a 4 unit is a conforming loan product, it is pretty standard. 

I don’t want to rent to a family with kids for ethical reasons (I don’t have a lead certificate of conformance).

If that lender says anything more than 1 unit needs 20-25% down you need another lender as they clearly do not understand what is being asked, and/or do not know the guidelines on conforming loans...which is scary.If you sell your primary house and move into a multi, it is easy to explain that transition, fiscal responsibility, retirement planning etc. 

@Aditya Maini there are a lot of rules if using conventional, conforming loans for the type of scenario you are referring to. 

New field or pay structures don't easily fit in the "conforming loan boxes"  Usually, they can get a job offer letter showing the new pay and start date, that would be helpful.

We were planning to finance up to the conforming limit ($548,250 or about 71% LTV).Is this just something with this particular lender requiring exchange proceeds to remain in the property, and another lender could have different rules?

The Assessed value is $200K before we added an additional conforming bedroom on one side making it a 2-1 and a 3-1.  

Most towns a complete teardown can  destroy any non-conforming rights you may have.

I have 10 conforming loans on cash-flowing properties, and we're trying to come up with a win-win.

@Michael Puckett Purchase money mortgages are the ultimate way to acquire real estate...and if the terms work, always superior to any comparable product you can get from a conforming lender.