Hard money term sheet explained in one sentence: it’s the lender’s written summary of pricing, leverage, and closing conditions—before you reach final loan documents.
Most investors get burned because they read a term sheet like marketing instead of reading it like a preview of the closing file. The headline interest rate rarely tells the full story. Your real cost and timeline depend on the full structure: points, lender fees, third-party costs, valuation requirements, title requirements, draw rules (if rehab), payoff rules, and the exact “conditions to close.”
If you want the term sheet to match reality, start with your program context first: Hard Money Loans. If you’re comparing structures (hard money, fix and flip, DSCR, bridge, construction), review: Hard Money Loan Programs.
At a glance
- A term sheet is a summary, not the final loan agreement.
- Compare offers by total dollars over your hold time—not just the interest rate.
- Leverage terms (LTV [Loan-to-Value], LTC [Loan-to-Cost]) control approval and risk.
- Draw rules determine whether a rehab project stays funded on schedule.
- Payoff rules (prepayment or minimum interest) can change your real cost.
- “Conditions to close” is where timelines live or die.
What a term sheet is (and what it is not)
A term sheet is the lender saying: “If the deal looks like this and you deliver these items, we can close on these terms.” It’s not the final set of closing documents, but it should be specific enough that you can budget accurately, understand what’s required to close, and compare two offers without getting fooled by headline numbers.
Keep this glossary open while you read any term sheet so you don’t miss the meaning behind the numbers: Hard Money Loan Terms Glossary.
The 12 term sheet items that actually matter (in order)
1) Loan amount and leverage basis
The term sheet should clearly state how leverage is calculated. Confirm whether it’s based on as-is value, ARV [After Repair Value], and whether LTV [Loan-to-Value] and LTC [Loan-to-Cost] limits apply. If the leverage basis is vague, you can’t model cash-to-close or approval odds correctly.
2) Interest rate and payment structure
Confirm whether payments are interest-only (common for short-term investor financing) or amortizing, and confirm when payments begin.
3) Points (origination) and lender fees
Points are typically paid at closing and are separate from interest. A clean term sheet separates points, any lender admin/underwriting fees (if applicable), and third-party costs.
If you want the simplest explanation of points vs rate (and how to compare offers), use: Points vs Interest Rate.
4) Third-party closing costs (non-lender fees)
Third-party costs usually include title and escrow fees, recording fees, insurance premiums, and valuation (appraisal or BPO [Broker Price Opinion]) when required. Good term sheets make it easy to separate lender pricing from third-party costs so you can budget correctly.
5) Term length and extension rules
Confirm the initial term length and whether extensions are available. If extensions exist, the term sheet should clarify extension fees, whether re-underwriting is required, and what project status is required for approval.
6) Prepayment rules / minimum interest
Ask directly whether there is a prepayment penalty or a minimum interest period, and what the payoff looks like if you exit in 30, 60, or 90 days. If your strategy relies on an early exit, payoff rules can matter more than a slightly lower rate.
7) Rehab and draw structure (if the project includes work)
If rehab is involved, the term sheet must clearly state whether rehab funds are released in draws, what triggers draw releases (photos/inspections/invoices), expected timing after verification, and how change orders are handled. If draw rules are vague, timelines and holding costs become unpredictable.
8) Valuation method and timeline
Confirm whether the lender requires an appraisal or a BPO [Broker Price Opinion]. Valuation is often a pacing item, so this must be clear early.
9) Title and escrow requirements
Closing requires a title policy that can insure the lender’s lien position. If there are known liens, ownership complexity, probate, or other title friction, those issues must be surfaced early so they don’t stall the closing at the end.
10) Insurance requirements
Insurance must match property reality: vacancy status, rehab status, and construction exposure where applicable. Insurance paperwork is one of the most common last-mile delays when handled late.
11) Entity and signing requirements
If you’re closing in an LLC [Limited Liability Company], confirm what entity documentation and signing authority will be required. Entity friction is preventable if you prepare early.
12) Conditions to close (the real closing roadmap)
The conditions list is the real “close date roadmap.” A strong term sheet does not say “standard conditions.” It specifies conditions clearly so you can clear valuation, title, insurance, and entity items in parallel and close faster.
Term sheet red flags (what causes delays and surprises)
- Vague leverage language (no clear LTV [Loan-to-Value] or value basis).
- Rehab draws mentioned but not defined (no triggers, no timing, no verification method).
- No payoff rules disclosed (prepayment or minimum interest not stated clearly).
- “Pricing subject to change” with no defined reason (valuation/title outcomes should be specified).
- “Standard conditions” instead of a real conditions list.
- Timeline promises that ignore pacing items (title and valuation).
Copy/paste questions to ask before you accept terms
- What valuation method is required: appraisal or BPO [Broker Price Opinion]?
- What are total lender fees in dollars (points + any lender fees)?
- What are expected third-party costs (title/escrow/recording/insurance/valuation)?
- Is there a prepayment penalty or minimum interest period?
- If rehab is involved: how do draws work and how long do releases take after verification?
- What are the exact conditions to close?
Where to go next on Ambition Lending
- Hard money overview: Hard Money Loans
- Program menu: Hard Money Loan Programs
- Common questions: FAQ
- Client proof: Testimonials
Frequently Asked Questions (FAQ)
What is a hard money term sheet?
A hard money term sheet is a written summary of proposed loan pricing, leverage, and the conditions required to close. It previews the closing file before final loan documents are issued.
Is a term sheet the same as the loan agreement?
No. A term sheet is a summary of proposed terms and conditions. The final loan documents come later, but the term sheet should be specific enough to prevent surprises.
What should I compare when I receive two term sheets?
Compare total dollars over your expected hold time, including points, interest rate, payoff rules (prepayment or minimum interest), third-party costs, and the clarity of conditions to close.
What term sheet section causes the most closing delays?
Conditions to close and valuation requirements. If these are vague or discovered late, the closing timeline becomes unpredictable.
If my deal includes rehab, what must the term sheet clearly state?
Draw structure, what triggers draw releases (photos/inspections/invoices), expected timing after verification, and how change orders are handled.
What is the biggest mistake investors make when reading a term sheet?
Focusing only on interest rate and ignoring payoff rules, fees, draw structure, and the conditions to close.
