Comparing Hard Money Lender Offers: How to Read Two Term Sheets Side by Side
Comparing hard money lender offers requires careful examination of term sheets side by side to identify hidden costs and differences. This guide outlines essential line items to consider and provides a method for normalizing offers for a clearer comparison.
- Interest rates are just one factor; points, draw schedules, and fees also impact total costs. Borrowers should create a two-column worksheet to compare key terms directly. Asking lenders specific questions can reveal important details that term sheets may not disclose.
- Two hard money lenders quote you an 11% rate.
- One [...] Two hard money lenders quote you an 11% rate.
To compare hard money lender offers effectively, examine the term sheets side by side. Look beyond the interest rates to identify hidden costs and fees that can significantly impact the total expense of the loan. Understanding these details will help you make an informed decision.
Two hard money lenders quote you an 11% rate. One costs $14,000 more over a six-month flip. That gap lives in the fine print most borrowers skip.
Comparing hard money lenders means more than scanning interest rates. The real differences hide in points, draw schedules, extension fees, and prepayment language. This post walks you through reading two competing term sheets as a matched pair.
You will learn which line items matter, how to normalize offers that look different on paper, and where lenders bury costs that surface at closing.
Why Comparing Hard Money Lenders Requires a Side-by-Side Method
A hard money loan offer comparison fails when you judge one sheet at a time. Each lender formats terms differently. Reading them in sequence lets your memory distort the first offer by the time you reach the second.
Put both term sheets in two columns. Match every line item against its twin. When one sheet lists a fee the other omits, flag it rather than assume it does not exist.
The goal is a true apples-to-apples view, not a gut reaction to the headline rate.
The Seven Line Items That Decide Which Offer Wins
Rate is one of seven numbers that determine your actual cost. Compare all seven before choosing.
- Interest rate — the annual percentage charged on the loan balance.
- Points (origination fee) — upfront cost expressed as a percentage of the loan.
- Loan-to-value (LTV) or loan-to-cost (LTC) — how much they fund versus what you bring.
- Draw schedule — how and when rehab funds release.
- Term length and extension terms — months allowed and cost to extend.
- Prepayment penalty or minimum interest — what you owe if you pay off early.
- Junk fees — processing, document, underwriting, and wire charges.
How to Normalize Two Offers That Look Different
Lenders quote the same loan in ways that resist direct comparison. Normalizing means converting both to a shared format.
Convert Points and Rate Into Total Dollar Cost
A lower rate with higher points can cost more on a short hold. Calculate the dollar amount of each, not the percentage.
Example: a $300,000 loan held six months. Lender A charges 10% interest plus 3 points. Lender B charges 11% plus 1 point.
- Lender A: $15,000 interest + $9,000 points = $24,000
- Lender B: $16,500 interest + $3,000 points = $19,500
Lender B wins by $4,500 despite the higher rate. The headline number misled you.
Match the Draw Schedule to Your Rehab Timeline
A draw schedule controls when rehab money reaches you. One lender may release funds in three draws after inspection. Another may require five smaller draws with a fee each time.
If you pay $250 per draw inspection, five draws cost $1,250 versus $750. That gap belongs in your comparison column.
Read Extension Terms Before You Sign
Most flips run long. Extension cost separates a fair lender from an expensive one.
Ask each lender: how many months can I extend, and what does each cost? A 1-point extension on $300,000 is $3,000. A lender with a free 30-day grace period saves that outright.
Where Lenders Hide Cost in the Fine Print
The cheapest-looking offer sometimes carries the heaviest back-end. Four clauses deserve direct attention.
Minimum Interest Guarantees
A minimum interest clause forces you to pay a set number of months even if you repay early. A three-month minimum on a loan you planned to repay in 45 days doubles your interest cost.
Confirm whether either offer locks you into minimum interest. This single clause can erase a rate advantage.
Prepayment Penalties
Fix-and-flip borrowers repay fast. A prepayment penalty punishes exactly that behavior. Favor the offer without one when your exit is quick.
Default Interest Rates
Read the default rate even if you expect to pay on time. A jump from 11% to 24% on a late payment reshapes your risk. One late draw inspection should not trigger it.
Junk Fees Stacked at Closing
Processing, underwriting, document prep, and wire fees add up quietly. Request a line-item fee sheet from both lenders. A $1,995 “admin package” from one lender may not appear on the other at all.
A Side-by-Side Comparison Worksheet You Can Copy
Build a simple two-column sheet. Fill every row for both lenders before deciding.
- Loan amount funded: Lender A ___ / Lender B ___
- Cash required at close: Lender A ___ / Lender B ___
- Interest rate: Lender A ___ / Lender B ___
- Points in dollars: Lender A ___ / Lender B ___
- Total interest for your hold: Lender A ___ / Lender B ___
- Draw count and inspection fees: Lender A ___ / Lender B ___
- Extension cost: Lender A ___ / Lender B ___
- Minimum interest or prepay penalty: Lender A ___ / Lender B ___
- All junk fees totaled: Lender A ___ / Lender B ___
- Total cost of capital: Lender A ___ / Lender B ___
The last row decides the winner. Add every dollar each lender collects across the full hold. The lower number is your answer.
Questions to Ask Each Lender Before Finalizing
Term sheets omit things you can only learn by asking. Pose identical questions to both lenders.
- How fast can you close once I submit documents?
- Do you fund the full rehab budget or a percentage?
- What triggers a reappraisal or re-underwrite?
- Who inspects draws, and how long until funds release?
- Can I see a sample payoff statement?
A lender who answers clearly and quickly tells you how closing will go. Vague responses on a term sheet predict vague support at the worst moment.
When the Cheaper Offer Is Not the Better One
Price is one input, not the final word. A lender who closes in seven days may win a competitive purchase a cheaper lender would lose.
Speed, draw reliability, and willingness to extend carry real dollar value. A $2,000 cost difference means nothing if the slow lender blows your closing date and you lose the deal.
Weigh total cost against certainty of execution. On a time-sensitive flip, certainty frequently wins.
Conclusion
Comparing hard money lenders comes down to normalizing both offers into total cost of capital, then weighing that against closing speed and draw reliability. Read the fine print on minimum interest, prepayment, and extension terms before the headline rate sways you. Build the two-column worksheet and let the final row decide.
Want a second set of eyes on two competing term sheets? Apex Money Lending Group will walk through both with you line by line. Call or text 720‑365‑4344, email info@apexmoneylending.com, or visit https://apexmoneylending.com.
Sources
- Consumer Financial Protection Bureau – What is a prepayment penalty?
- U.S. Small Business Administration – Manage Your Finances
- U.S. Securities and Exchange Commission (Investor.gov) – Points
