Glossary › Glossary
A term sheet — also called a Letter of Intent (LOI) — is a non-binding document from a hard money lender proposing the terms on which they will make the loan. It includes the rate, points, loan amount, LTC/LTV, term, draw schedule structure, prepayment terms, and key conditions. It is not a commitment to fund. It is the lender saying: "If the deal comes in as described and underwriting confirms everything, here is what we will offer."
These are different stages:
Term sheet (LOI): Non-binding. Issued early in the process based on the borrower's submitted deal information. Gives both parties a framework for whether to proceed. Does not obligate the lender to fund.
Commitment letter: Issued by some lenders after underwriting is complete or substantially complete. More binding indication that the lender will fund, subject to closing conditions. Not all hard money lenders issue formal commitment letters — some move directly from term sheet to clear-to-close.
In practice, many hard money borrowers (and brokers) treat the term sheet as a reliable signal of terms — and it usually is, as long as the deal comes in as represented. If the appraisal is lower than expected or the scope of work is more expensive than stated, the lender may adjust terms.
Loan amount: The maximum the lender will fund. May be stated as a dollar amount, a percentage of LTC, and/or a percentage of ARV.
Interest rate: The annual interest rate on the loan. Hard money rates are typically stated as a simple annual rate and charged monthly. 11% annual rate = approximately 0.917% per month on the outstanding balance.
Origination fee / Points: The lender's upfront fee at closing. "2.0 points" on a $250,000 loan = $5,000 due at closing.
Loan term: How long until the loan matures — when it must be repaid in full. Typically 12 months for fix and flip. May include extension options.
Draw schedule: How the rehab holdback is structured. May specify number of draws, milestone triggers, inspection requirements, and draw processing timelines.
Dutch or non-Dutch interest: Not always specified — ask explicitly if not stated. Determines whether interest accrues on committed or drawn funds.
Prepayment penalty: Is there a minimum interest period or an early payoff penalty? Some lenders have no prepayment penalty (borrow for 3 months, pay 3 months of interest). Others require a minimum — "6 months of interest regardless of payoff date." Relevant for fast flippers.
Conditions: What the lender requires before they will close the loan. May list required documents, title conditions, insurance requirements, borrower entity requirements.
Expiration: Term sheets typically have an expiration date — 15-30 days is common. If the borrower does not proceed within that window, the lender may requote or require an updated deal submission.
Never pick a lender based on one number. Compare term sheets across all dimensions:
| Lender A | Lender B | Lender C | |
|---|---|---|---|
| Rate | 10.5% | 11.0% | 10.75% |
| Points | 2.5 | 2.0 | 2.0 |
| LTC | 85% | 82% | 85% |
| Term | 12 mo | 12 mo | 12 mo |
| Dutch? | Yes | No | Yes |
| Close time | 14 days | 10 days | 21 days |
| Prepay | None | 3 mo min | None |
In this example, Lender B has a higher rate but non-Dutch interest, a faster close time, and only 2 points. Depending on the holdback size and renovation timeline, Lender B may be the lower total cost option despite the higher stated rate.
Usually not negotiable:
Sometimes negotiable (especially with experienced borrowers or volume relationships):
When a deal is borderline — close to the edge of the credit box — ask your AE what adjustments might make the deal work rather than accepting a decline. Sometimes a small equity increase or a co-borrower opens a better program.
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