Speed is the currency of the real estate market. When you find a deal that pencils out, the last thing you want is to be bogged down by a slow, bureaucratic bank. This is why most professional investors turn to private money lenders for real estate: they provide the liquidity needed to move fast and secure competitive assets.
However, speed shouldn't mean sloppiness. A term sheet is more than just a rate and a loan amount; it’s a roadmap for your project’s success: or its failure. If you don't know how to read between the lines, a "good deal" can quickly turn into a margin-eating nightmare.
At Bosson Capital, we approach lending with an operator’s mindset. We’ve been in your shoes, managing renovations and scaling portfolios. We know that a clear, transparent term sheet is the foundation of a successful partnership.
Before you sign on the dotted line with any hard money lenders, here are the 10 critical things you must check to protect your deal.
1. The Real Cost of Capital: Points vs. Rate
Don’t get blinded by a low interest rate. Many lenders lead with an attractive "headline" rate but bury the real cost in origination points.
- Origination Points: These are upfront fees paid at closing, usually 1% to 3% of the loan amount.
- The Calculation: Add the annualized cost of the points to your interest rate. If you’re taking a 6-month bridge loan at 10% with 2 points, your effective annual rate is significantly higher.
The Operator Tip: Always ask for the total "all-in" cost of capital. A higher rate with zero points might actually be cheaper for a quick flip than a low rate with heavy points. No surprises: just math.
2. Leverage Limits: LTV vs. LTC
Understanding how a lender calculates leverage is the difference between bringing $20k or $100k to the closing table.
- LTV (Loan-to-Value): Based on the current appraised value or the After-Repair Value (ARV).
- LTC (Loan-to-Cost): Based on the actual purchase price plus renovation costs.
Most fix and flip loans are structured around a percentage of the total cost (LTC), often capped by a maximum ARV percentage. If the lender’s ARV appraisal comes in lower than yours, your loan amount will shrink.
3. Draw Schedules and Release Fees
For renovation projects, the lender doesn't give you all the money at once. They hold the rehab funds in escrow and release them in "draws" as work is completed.
- The Check: Look at the number of draws allowed and the fee per draw.
- The Delay: How fast does the lender release funds? If it takes two weeks and an expensive inspection for every draw, your contractors will walk off the job.
We prioritize speed: clear draw processes mean your project stays on schedule.
4. Extension Options: Your Project’s Safety Net
In real estate, things go wrong. Permits get delayed, materials are backordered, and buyers flake. If your 9-month loan is expiring and the house isn't sold, you need an out.
- The Terms: Does the term sheet allow for extensions?
- The Cost: Most lenders charge an additional point or a flat fee for a 3-month extension.
Never sign a term sheet that doesn't clearly define how you can extend the loan. You don't want to be at the mercy of a lender’s "discretion" when your maturity date is looming.
5. Prepayment Penalties and Minimum Interest
Private money is designed to be short-term. However, some lenders want to guaranteed a certain return.
- Minimum Interest: This clause states that even if you pay off the loan in two months, you owe at least four or five months of interest.
- Prepayment Penalty: A flat fee charged for paying back the principal before a certain date.
If your exit strategy involves a quick flip or a fast refinance into rental property loans, these fees can evaporate your profit. Seek out "no prepay" options whenever possible.
6. Personal Guarantees and Recourse
Most private money loans are "asset-based," but that doesn't mean they are non-recourse.
- Recourse: If the project fails and the house is sold for less than the debt, the lender can come after your personal assets.
- Non-Recourse: The lender's only remedy is the property itself (often with "bad boy" carve-outs for fraud).
Understand what you are personally signing for. A disciplined approach to underwriting helps both parties avoid these worst-case scenarios.
7. Default Interest and Grace Periods
What happens if you’re five days late on a payment?
- Default Rate: Some term sheets state that the interest rate jumps to 18% or 24% the moment a default occurs.
- Grace Period: Check if there is a 5- or 10-day window before late fees and default rates kick in.
In the world of hard money lenders, these clauses are common, but they should be reasonable. Clear boundaries prevent minor hiccups from becoming financial disasters.
8. Third-Party and "Junk" Fees
The term sheet should list all estimated closing costs. Watch out for:
- Processing and underwriting fees.
- Legal and document preparation fees.
- Site visit or inspection fees.
While some fees are legitimate, they should be disclosed upfront. At Bosson Capital, we believe in straightforward feedback: no hidden layers or unnecessary administrative bloat.
9. Direct Access to the Decision-Maker
This isn't a line item on the sheet, but it's the most important factor in the document's validity.
- The Question: Are you talking to the person who writes the checks, or a "loan officer" who has to send your file to a committee in another state?
- The Risk: Committees kill deals. They lack the context of the local market and the nuances of your specific project.
Work with lenders who provide direct access. When you have a question about your term sheet, you should be able to call the person who approved it. No gatekeepers: just answers.
10. Speed to Close (The Reality Check)
A term sheet is just a piece of paper until the funds hit the escrow account.
- The Timeline: Does the lender promise a 10-day close but require a 14-day appraisal process?
- The Reliability: Ask for proof of recent closings.
Speed beats rate every single time in a competitive market. If a lender can't move as fast as the seller requires, the lowest rate in the world won't save the deal.
Conclusion: Partner with an Operator
Signing a term sheet is the start of a partnership. You need a lender who doesn't just see a spreadsheet, but sees the value you are creating in the property.
At Bosson Capital, we use our experience in real estate and vacation rentals to provide disciplined, fast, and flexible financing. We don’t just fund deals: we help you scale. Whether you are looking for fix & flip loans or need a bridge loan to capture a time-sensitive opportunity, we provide the clear feedback you need to execute.
Stop waiting on committees.
Contact Bosson Capital today to discuss your next deal and get a straightforward term sheet that works as hard as you do.
