Term Sheet
A document summarizing a loan's proposed key terms — amount, rate, points, LTV, term, fees — before full underwriting. It signals serious lender interest but is typically non-binding and subject to conditions.
A term sheet is a document that summarizes the proposed key terms of a loan before the lender issues a final, binding commitment. It lays out the deal's economics and major conditions on a page or two, so the borrower and lender can confirm they're aligned before investing time and money in full underwriting. It's the loan equivalent of a deal outline.
What a term sheet typically includes
- Loan amount and LTV / LTC (and ARV cap on rehab deals).
- Interest rate and whether fixed or interest-only.
- Points and fees — origination and other charges.
- Term / maturity and any balloon.
- Prepayment terms.
- Draw schedule structure (on construction/rehab loans).
- Reserves / interest reserve requirements.
- Recourse / guarantee expectations.
- Conditions — appraisal, title, entity docs, and other items required to close.
Binding or not?
Most term sheets are non-binding — an expression of serious interest and the basis for proceeding, not a guaranteed loan. They're usually subject to conditions like a satisfactory appraisal, clear title, and final underwriting. Some include a small good-faith or due-diligence deposit. Read it for any binding provisions (e.g., exclusivity or deposit terms), but understand the loan isn't certain until you get a firm commitment and clear conditions.
Term sheet vs. loan commitment vs. closing docs
| Stage | What it is | Binding? |
|---|---|---|
| Term sheet | Proposed terms, early | Usually no |
| Loan commitment | Lender's firm offer after underwriting | Yes, subject to conditions |
| Closing documents | Note, deed of trust, etc. | Yes — the actual loan |
Why it matters to investors
- Compare lenders apples-to-apples. A term sheet puts each lender's rate, points, LTV, and fees in one place — the right way to shop financing. Compare the total cost over your hold, not just the rate.
- Confirm the deal pencils. Plugging the term sheet's actual numbers into your underwriting tells you whether the financing supports your exit before you spend on appraisal and diligence.
- Speed and certainty. A clean term sheet from a responsive lender is a good sign of a smooth close — important when you need to perform fast.
Practical takeaway
Treat the term sheet as your decision document for choosing a lender and validating the deal's economics, but not as a done deal. Read every line — especially points, prepay, reserves, and conditions — model the real numbers, and watch the gap between the term sheet and the final commitment. The terms that show up here are what you'll live with for the life of the loan, so scrutinize them now, while you still have leverage to negotiate or walk to another lender.
Frequently asked questions
What's included in a loan term sheet?
The proposed key terms: loan amount, LTV/LTC (and ARV cap on rehab deals), interest rate, points and fees, term and any balloon, prepayment terms, draw structure, reserve requirements, recourse/guarantee expectations, and the conditions to close. It's a one- or two-page summary of the loan's economics and major terms.
Is a term sheet a binding loan commitment?
Usually not. Most term sheets are non-binding expressions of serious interest, subject to conditions like a satisfactory appraisal, clear title, and final underwriting. The loan isn't certain until you receive a firm commitment and satisfy its conditions. Read the term sheet for any binding provisions like deposits or exclusivity.
How should I use a term sheet to compare lenders?
Put each lender's term sheet side by side and compare the total cost over your expected hold — rate plus points plus fees — not just the headline rate. Also weigh LTV, prepay terms, reserves, and conditions. Then plug the real numbers into your underwriting to confirm the financing supports your exit before paying for diligence.