When is lender approval necessary in real estate transactions?

Lender approval is particularly necessary when selling a property for less than the mortgage amount, often referred to as a short sale. In this scenario, the seller owes more on the mortgage than what the property is worth and intends to sell the home to pay off the lender, but the sale price is insufficient to cover the outstanding mortgage balance. In such cases, the lender must approve the sale because they are being asked to accept a loss on the loan. Without lender consent, the seller would still remain responsible for the difference between the selling price and the remaining mortgage balance.

For the other situations listed, lender approval might not be required. In most general purchases of property, the buyer may not need specific lender approval barring contingent circumstances like the aforementioned short sale. When refinancing a mortgage, the current lender is involved but the process is different from a property sale. Additionally, with new construction homes, while financing options still apply, that does not inherently require specific lender approval for the transaction as a whole. Thus, lender approval becomes critical in the context of a short sale to ensure all parties understand and agree to the terms of settling the outstanding mortgage.