A term sheet is a short document a lender provides to outline the proposed terms of a loan before the file moves into full underwriting. For investors, the term sheet is the first concrete picture of how a deal might be structured, including rate, leverage, points, and key conditions. Reviewing it carefully helps borrowers decide whether to move forward and what to confirm before paying for third-party reports.
What a Term Sheet Includes #
A term sheet typically covers the core economics and structure of the loan. Common line items include:
- Loan amount and loan-to-value or loan-to-cost ratio
- Interest rate and rate structure
- Points or origination fees
- Loan term and amortization
- Prepayment penalty, if any
- Required reserves or escrows
- Recourse or non-recourse structure
- Major underwriting conditions
The level of detail varies by lender, but the goal is the same: give the borrower enough information to evaluate the deal.
How a Term Sheet Differs From a Loan Approval #
A term sheet is not the same as a final loan approval. It reflects the lender’s initial read on the deal based on the information available at that point. Final terms can shift based on appraisal results, title review, borrower documentation, and other underwriting findings. Most term sheets state directly that they are non-binding.
A loan approval, by contrast, comes after underwriting is complete and the lender has confirmed the deal meets all conditions.
Why Investors Pay Close Attention to the Term Sheet #
Investors review these sheets carefully because the document shapes the rest of the process. A clear sheet:
- Confirms whether the deal pencils based on real numbers
- Sets expectations for closing costs and net proceeds
- Surfaces conditions early so they can be addressed in time
- Provides a basis for comparing offers from multiple lenders
Skipping or skimming this step often leads to surprises later.
Common Misunderstandings #
Borrowers sometimes assume a sheet is binding or that the rate is locked. In most cases, neither is true. Final rate and terms depend on the full underwriting outcome, and most carry expiration dates or conditions that can change.
Summary #
A term sheet is the lender’s proposal for how a loan would be structured, covering rate, leverage, points, and conditions. It is not a commitment, and final terms can shift through underwriting. Reading the term sheet carefully and asking questions early helps investors avoid surprises and plan their financing with more confidence.