What does loan assumption entail?

Loan assumption refers to the process whereby a new buyer takes over the existing mortgage of the seller, including the responsibilities and obligations associated with it. The correct answer emphasizes the act of the new buyer adding their signature to the loan note, which signifies their agreement to uphold the terms of the mortgage. This action is essential, as it formalizes their role in the loan and indicates that they will be responsible for making the future payments.

Moreover, loan assumption often requires the lender's approval, which may involve a review of the new buyer’s financial credibility. This process allows the lender to ensure that the new borrower has the ability to manage the payments on the loan. The original borrower might still retain some level of responsibility, depending on the specific terms of the assumption, potentially complicating the situation if the new buyer defaults.

Ultimately, the answer provided captures the essence of loan assumption in the context of real estate transactions by recognizing the importance of the new buyer's acceptance of the existing debt obligation.