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A hard money term sheet (sometimes called a letter of intent or LOI) is a document the lender provides after preliminary approval, summarizing the proposed loan terms before the formal application. It is not a commitment to lend — it is a starting point for the deal. Knowing how to read it tells you what you are actually agreeing to and what to compare across lenders.
A term sheet is a non-binding summary of proposed loan terms. It tells you: here is what we would offer on this deal, subject to full underwriting and approval.
It is not a loan commitment. The terms can change after underwriting if the appraisal comes in differently, if title issues arise, or if the borrower's documentation does not match what was represented at submission.
Some lenders issue a term sheet after a 15-minute phone call on minimal information. Others do more diligence before issuing one. A term sheet from a lender who has actually reviewed your deal is more reliable than one generated from a rate card without deal-specific review.
Loan Amount The total amount the lender will fund — typically broken into the initial advance (purchase) and the holdback (renovation). Confirm both components are clearly stated.
Loan-to-Cost (LTC) or Loan-to-Value (LTV) The ratio of loan amount to total project cost (LTC) or property value (LTV). A 90% LTC on a $200,000 total project cost means the lender funds $180,000 and you bring $20,000. Confirm which metric is being used — they are calculated differently and can create confusion when comparing lenders.
Interest Rate The annual interest rate on the loan. Confirm whether the rate is:
Dutch vs. non-Dutch interest is a significant cost difference on loans with large holdbacks. With Dutch interest, you only pay interest on funds actually drawn. With non-Dutch interest, you pay interest on the full loan amount from day one — including renovation funds you have not yet received.
Points / Origination Fee The upfront fee charged at closing, expressed as a percentage of the loan. 2 points on a $300,000 loan = $6,000. Some lenders charge points on the full loan amount; others charge on the initial advance only. Clarify which.
Term The loan term — how long you have before the loan matures and must be repaid or refinanced. Standard terms are 12-18 months. Confirm whether extensions are available and at what cost.
Prepayment Penalty Many hard money loans have a prepayment penalty or minimum interest period — typically 3-6 months. If you sell or refinance before the penalty window expires, you owe the lender the minimum interest regardless.
Example: A 6-month minimum interest on an 11% loan at $300,000 is approximately $16,500. If you sell at month 4, you still owe $16,500 even though you only held the loan 4 months.
Draw Structure How renovation funds are released. How many draws are allowed? Is there a fee per draw? Is there retainage? Confirm the draw process, timeline, and costs.
Extension Terms If the project runs long, can you extend? What does it cost (typically 0.5-1.5 points per extension month or a flat extension fee)?
Personal Guarantee Is the loan recourse (personal guarantee required) or non-recourse (no personal guarantee beyond the collateral)? Most hard money loans are recourse. Confirm.
When comparing two or more term sheets:
Total financing cost: Do not just compare rates. Add up interest (accounting for Dutch vs. non-Dutch), points, draw fees, and any prepayment requirements. The total cost for your specific hold period on your specific loan amount is the number that matters.
Draw timing: A lender with a slower draw process costs you time and contractor momentum. Ask how long from draw request to wire.
Actual LTC offered: One lender may advertise 90% LTC and offer 82% on your specific deal. Compare what is actually being offered on your deal, not the headline.
Extension availability: If your project runs long, can you extend? A loan with a tight term and no extension option is a risk if the timeline slips.
Before accepting a term sheet and proceeding to application:
A term sheet is your roadmap for the deal ahead. Read it carefully, compare it to at least one other option, and understand exactly what you are agreeing to before you write a check.
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