Term Sheet
A non-binding summary of proposed loan terms a lender offers before formal underwriting.
A term sheet is a written summary of the terms a lender proposes for a loan. It lays out the loan amount, rate, term, amortization, LTV or LTC, recourse, fees, and major conditions. It comes early in the process, before full underwriting, to confirm the two sides agree on the basic shape of the deal.
Most term sheets are non-binding, meaning neither party is fully committed and terms can change as underwriting, appraisal, and third-party reports come in. Signing usually comes with a good-faith deposit that funds those reports and signals the borrower is serious.
Comparing term sheets means looking past the headline rate. Leverage, recourse, prepayment terms, reserves, and fees can matter more than a small rate difference. A higher-rate loan with more proceeds and non-recourse terms can beat a cheaper, more restrictive one.
Formula
Term sheet outlines proposed rate, leverage, term, recourse, and fees
Worked Example
A borrower receives two term sheets: one at 7% and 65% LTV with recourse, another at 7.25% and 72% LTV non-recourse. The second offers more proceeds and less personal risk, which may outweigh the higher rate.
Why It Matters
The term sheet is where you negotiate. Reading it closely and comparing offers on more than rate helps you choose the loan that actually fits your plan, not just the lowest number.
Related Terms
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Frequently Asked Questions
Is a term sheet binding?
Most are non-binding. They confirm the proposed terms, but the final loan can change as underwriting, appraisal, and third-party reports are completed.
How do I compare two term sheets?
Look beyond the rate at leverage, recourse, prepayment terms, reserves, and fees. More proceeds or non-recourse terms can be worth a slightly higher rate.