Hard Money Loan Term Sheet: How to Read and Compare Offers

When investors hear term sheet, they often think of it as routine paperwork before the “real” documents arrive. In truth, this one-page summary can determine whether your deal succeeds or turns into an expensive mistake.

A hard-money loan term sheet is the bridge between handshake and closing. It outlines the core economics, timelines, and structure of your loan before the full set of closing docs is drafted. For California investors navigating tight deadlines, this summary is your best opportunity to clarify expectations — and catch red flags early.

What a Hard-Money Term Sheet Actually Covers

Every lender formats term sheets differently, but the essentials rarely change. Let’s break down the key sections investors should read line by line.

1. Loan Amount and LTV (Loan-to-Value)

This defines how much of the property’s value (or purchase price) the lender will finance.

• Typical range: 60–75 % LTV for California hard-money.
• If you’re including rehab funds, check whether they’re part of the total or issued later as draws.

Tip: Some lenders calculate LTV on the as-is value, others on after-repair value (ARV). That difference can add or subtract tens of thousands in available capital.

2. Interest Rate and Payment Type

Hard-money loans usually charge 9–12 % annual interest, paid interest-only each month.

• Confirm whether the rate is fixed or adjustable.
• Ask if payments are due monthly or collected upfront from proceeds.

A 10 % interest-only loan may seem expensive, but for a six-month flip that earns 25 %, it’s part of the investment math — not a cost to fear.

3. Points and Fees

Points are upfront lender fees expressed as a percentage of the loan (e.g., 2 points = 2 %).
Also review:

• Underwriting or doc-prep fees
• Processing or wire fees
• Extension fees

California insight: Under the state’s Finance Lenders Law, all fees must be disclosed clearly. If a quote looks vague (“standard closing fees apply”), request a breakdown before signing.

4. Term Length and Extensions

Most hard-money loans last 6–12 months, sometimes up to 24.
Ask:

• What’s the cost to extend? (Typically 0.25–1 point per month.)
• How many extensions are allowed?
• When do extension requests need to be made?

This section affects your flexibility more than you might expect — especially if permits or renovations run long.

5. Prepayment Conditions

Hard-money lenders rely on interest income, so many include minimum-interest periods (e.g., three months). If you repay early, you may still owe that minimum.

Before signing, confirm whether the loan allows prepayment without penalty after a set period — important if you plan to refinance quickly.

6. Rehab or Construction Holdback

For fix-and-flip or value-add deals, part of your loan may be held in escrow until work milestones are verified.
Clarify:

• Draw request process and approval time
• Required documentation (invoices, photos, inspections)
• Whether draws are reimbursed or advanced

Slow draw processing can delay crews and add carrying costs — always vet this upfront.

7. Exit Strategy

Every reputable private lender will ask: How will you pay us back?
Your term sheet should reference the intended exit — sale, refinance, or long-term hold. Lenders like Lending Bee use that plan to tailor term length and structure around realistic timelines.

How to Compare Term Sheets the Right Way

When investors shop multiple lenders, they often focus only on the headline rate. But in private lending, total cost = rate + fees + time + flexibility.

Step 1 — Build a Simple Comparison Table

You’ll quickly see that a slightly higher rate can be cheaper overall if draw processing and extension flexibility are better.

Step 2 — Consider Reliability, Not Just Numbers

Ask these questions:

• How many business days do they take to fund after approval?
• Who services the loan — in-house or a third party?
• Can they show proof of recent closings in your county?

A lender that closes consistently in 7 days is worth more than one offering 0.25 % less but taking 30 days.

Step 3 — Weigh Local Expertise

California markets differ dramatically — Los Angeles multifamily, Central Valley ag-residential, Bay Area rehabs.
Local private lenders understand:

• County permit delays
• Regional ARV data
• Local appraiser reliability

That insight often prevents funding hiccups that cost investors weeks or thousands.

Red Flags in Term Sheets

Watch for these warning signs before you commit:

1. Vague language. If major terms are “TBD,” walk away.
2. No written proof of funds. Reputable lenders issue verifiable proof within hours.
3. Unrealistically low rates. If it looks too good, it usually hides heavy backend fees.
4. Personal-guarantee surprises. Make sure recourse terms are clear.
5. Hidden broker spreads. Ask directly whether additional origination points are layered in.

Professional lenders are transparent; ambiguity signals trouble ahead.

Case Study: Comparing Apples to Apples

📍 Investor in Orange County

• Property: 4-unit rental, purchase $1.1 M, rehab $120 k
• Two term sheets received:

Lender A — 9.75 % rate, 2 pts, 12 mo term, 5-day draws, no prepay penalty.
Lender B — 9 % rate, 3 pts, 9 mo term, 10-day draws, 1 pt/mo extension fee.

At first glance, Lender B looked cheaper. After factoring time and flexibility, the investor chose Lender A—saving nearly $12 000 in holding costs and avoiding a tight refi window.

How Lending Bee Approaches Transparency

Lending Bee issues clear, itemized term sheets that outline:

• Interest rate, term, and points in one summary table
• Funding timeline and draw schedule
• All extension and prepayment options up front
• Expected closing timeline (often 5–7 days in California)

Borrowers and brokers receive identical copies — ensuring everyone sees the same numbers and there are no last-minute surprises.

This clarity builds trust — something especially valuable when repeat investors or brokers handle multiple deals each year.

What Experienced Investors Look For

Seasoned borrowers focus less on “cheapest” and more on predictability.
When comparing term sheets, they ask:

• “Will this lender perform on schedule?”
• “Do they understand my exit plan?”
• “Are extensions realistic if my contractor falls behind?”

A transparent term sheet is the first test of that reliability.

In hard-money lending, small numbers on a page translate to big outcomes in real life. A 0.5 % difference in rate means little compared to a two-week funding delay or unclear fee structure.

The best investors treat the term sheet as a decision document, not a formality.

• Read every line.
• Ask questions early.
• Compare total cost, not just price.
• Partner with private lenders who value clarity as much as speed.

Because in real estate investing, success starts not at the closing table — but when you choose the right partner and the right terms. Talk to our loan officers at Lending Bee. We know what we are doing.