No such rule exists. What an underwriter tests is whether the move makes sense, and square footage is only one signal. The screening is for occupancy fraud, meaning claiming a home as a primary residence to get better terms when the real plan is investment. Consider the extremes. Someone who owns a million-dollar home, buys a small condo a few blocks away, and rents out the big house will get flagged, because the move looks like an investment purchase, and a letter of explanation is the minimum ask. A genuine downsizing story reads completely differently: moving closer to work or a school, trading toward the beach, empty-nesters shrinking their footprint while keeping the original home in the family. Those hold up fine when they are explained. So run your specific scenario past a lender before you write an offer. Give them the honest reason for the change and let them present it to underwriting for a read. A credible move usually clears with a short letter of explanation, and if yours will not clear, far better to learn that before you are under contract than after.