How to Read a Hard Money Term Sheet Before You Sign
Your loan got approved. Now a two-page PDF called a hard money term sheet lands in your inbox, and the clock starts ticking. This is the exact moment most borrowers rush — and it is the moment that costs them the most.
A term sheet is the document a lender sends after approval but before closing. It spells out your rate, fees, timeline, and the fine print that governs what happens if the deal goes sideways. Reading it line by line is how you protect your margin on a fix-and-flip or rental project.
This post breaks down every section you should check, the numbers that hide real cost, and the questions to ask before you sign.
What a Hard Money Term Sheet Actually Is
A hard money term sheet is a written summary of the loan terms a lender agrees to after reviewing your deal. It is not the final loan agreement, but it binds the main economics of the deal in most cases.
Treat it as a draft contract, not a formality. Once you sign and pay a deposit, changing terms becomes hard and sometimes expensive.
The term sheet sits in a specific window: after your approval, before your closing documents are drawn. That gap is your leverage window. Lenders expect negotiation here, and silence reads as agreement.
Why This Moment Matters More Than Approval
Approval tells you a lender wants to fund your deal. The term sheet tells you the price of that funding. Two lenders can both say yes and quote wildly different real costs.
We have seen borrowers accept a higher headline rate that cost less overall because the points and junk fees were lower. The only way to catch that is a careful read.
The Numbers That Decide Your Real Cost
Four numbers drive what a hard money loan costs you. Find each one on the term sheet before anything else.
- Interest rate — The annual rate, usually 9% to 13% for hard money. Check if it is fixed or adjustable.
- Points (origination fee) — A percentage of the loan paid upfront. Two points on a $300,000 loan is $6,000.
- Loan-to-value (LTV) or ARV — How much the lender funds against purchase price or after-repair value. This sets your down payment.
- Term length — Most hard money loans run 6 to 18 months. A short term on a slow rehab creates pressure.
Write these four numbers down for every term sheet you receive. Comparing them side by side is the fastest way to spot the better deal.
How Points and Rate Trade Off
A lender might quote 10% with 3 points, or 11.5% with 1 point. On a 9-month hold, the second option can cost you less. Run the math on your actual timeline, not the full year.
Points are paid day one. Interest accrues monthly. The shorter your hold, the more those upfront points matter relative to the rate.
Fee Lines That Catch Borrowers Off Guard
The rate and points are the obvious costs. The fees buried below them are where term sheets quietly add thousands.
Scan for every line item labeled as a fee, charge, or cost. Add them to your points total to get the true cost of borrowing.
- Underwriting or processing fee — A flat charge, often $500 to $1,500, separate from points.
- Document preparation fee — Charged for drawing the loan paperwork.
- Draw fees — A per-draw charge on rehab funds, sometimes $150 to $300 each. A 6-draw project adds up.
- Inspection fees — Charged each time the lender inspects before releasing a draw.
- Extension fee — What you pay to add months if your project runs long.
None of these are automatically unfair. But a term sheet that stacks all five deserves a direct question about which are negotiable.
The Clauses That Govern What Happens If You Slip
Most borrowers read the cost sections and skip the legal language. The clauses below decide your risk if the project runs late or the market shifts.
Prepayment Penalties and Minimum Interest
A prepayment penalty charges you for paying off the loan early. Some hard money lenders include a minimum interest guarantee instead.
A 3-month minimum interest clause means you owe three months of interest even if you sell in 45 days. On a $400,000 loan at 11%, that is roughly $11,000 whether you use the time or not.
Extension Terms
Rehabs run long. Permit delays, contractor gaps, and slow appraisals push timelines past the term. Check how extensions work before you need one.
Look for the extension fee, the maximum number of extensions, and whether the rate jumps during the extension period. A clear extension clause is worth more than a slightly lower rate.
Default Rate and Cure Period
The default rate is the penalty interest you pay if you miss a payment. Hard money default rates can hit 18% to 24%. The cure period is how many days you have to fix a missed payment before default kicks in.
A 10-day cure period gives you breathing room. A same-day default trigger does not. This single line can mean the difference between a recoverable late payment and a lost property.
Recourse vs. Non-Recourse
A recourse loan lets the lender pursue your personal assets if the property sale does not cover the debt. Non-recourse limits them to the property itself.
Most hard money loans are recourse and require a personal guarantee. Know which you are signing. The term sheet should state it plainly.
How to Compare Two Term Sheets Side by Side
When two lenders both approve your deal, build a simple comparison before you choose. Use the same loan amount and your real projected timeline.
- Total upfront cost — Points plus all flat fees, paid at closing.
- Monthly interest cost — Rate applied to your loan balance.
- Cost over your actual hold — Upfront plus monthly for your expected months, not twelve.
- Exit flexibility — Prepayment penalty, minimum interest, and extension terms.
- Funding speed — Days to close, which matters on a contract deadline.
A term sheet with a higher rate but no minimum interest and cheap extensions can win on a project you expect to flip fast. The lowest rate rarely wins once the fine print is counted.
Questions to Ask Before You Sign
Reading the term sheet is step one. Asking the right questions closes the gap between what is written and what you assumed.
- Is the interest charged on the full loan amount or only drawn funds?
- Which fees are negotiable, and which are fixed third-party costs?
- What triggers the default rate, and how long is the cure period?
- How many extensions are available and at what cost?
- Is there a minimum interest guarantee or prepayment penalty?
- What exactly do I owe at closing versus over the term?
Get every answer in writing. A verbal promise that contradicts the term sheet does not hold up at closing.
Common Term Sheet Mistakes
The errors below cost borrowers real money, and each one is avoidable with a slow read.
- Assuming interest is charged only on drawn funds — Many hard money loans charge on the full amount from day one.
- Ignoring the minimum interest clause — Fast flippers pay for months they never use.
- Missing the extension cost — A project that runs two months long can trigger fees you never budgeted.
- Skipping the default section — One missed payment at a 24% default rate changes the math on the whole deal.
Understanding a loan term sheet comes down to matching every number to your actual project plan, not the best-case version.
Key Takeaways
A hard money term sheet is a draft contract, and the window between approval and closing is your time to question, compare, and negotiate it. Check the four cost numbers, add up every fee, and read the clauses that govern lateness and early payoff before you sign.
Apex Money Lending Group walks borrowers line by line through their term sheets so the price you see is the price you pay. Call or text us at 720‑365‑4344, email info@apexmoneylending.com, or visit https://apexmoneylending.com to review your term sheet before you commit.
