What should be on a hard money term sheet before I sign?

A complete term sheet lists interest rate (typically 8.99%–13.5% IO on qualified fix-and-flip bridge), origination points, LTC and ARV caps, rehab holdback amount, draw milestone schedule, extension fees, default triggers, and prepayment terms. Every fee should be itemized — not marked TBD at closing.

How do I compare total cost between two hard money lenders?

Model all-in cost to your exit date: origination points plus monthly IO on the funded balance plus per-draw inspection fees, extension charges, and appraisal or valuation costs. On a $200,000 loan at 11% IO for nine months with two points, total carry often exceeds $25,000 before rehab float — rate alone rarely tells the story.

What licensing should a hard money lender have?

Verify the funding entity is registered in its home state, carries appropriate NMLS or state lending licenses where required for business-purpose investment loans, and provides written disclosures before you wire application fees. Brokers must identify who underwrites and who funds — opacity on entity structure is a walk-away signal.

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How to Choose the Right Hard Money Lender (2026)

Published June 24, 2026 · Updated July 18, 2026

By Jason Taken · Principal, Jaken Finance Group

Investor guide to evaluating hard money lenders — term sheet items, total cost, licensing, draw process, and red flags before you sign a term sheet.

Hard money is asset-based bridge capital for investors who need speed and leverage on non-owner-occupied deals — not W-2 documentation. The lender you pick determines whether you win the listing, survive rehab draws, and exit into resale or DSCR refi on timeline. Pick wrong and you pay twice: in fees at close, then in spread when draws stall or extensions hit at 8.99%–13.5% interest-only.

This guide covers how to choose the right hard money lender — term sheet items to compare, total-cost math, licensing checks, draw process evaluation, and red flags that predict a bad close. For product basics first, read what is a hard money loan.

Red flags in lenders · Loan proposal checklist · Hard money application process.

Hard money vs. traditional bank financing

Factor	Hard money	Traditional bank
Approval focus	Collateral ARV / rent	Borrower income and credit
Close speed	7–14 business days on complete files	30–45+ days
Term	6–24 months IO	15–30 year amortizing
Best for	Fix-flip, BRRRR bridge, distressed acquisition	Owner-occupied, stabilized rental

Hard money costs more per month — you pay for certainty and leverage. See hard money vs conventional differences for a deeper comparison.

Term sheet items every investor should verify

A term sheet is a purchase contract for your capital stack. If a line is vague, fix it before earnest money — not after the inspector rejects draw two.

Rate, points, and leverage caps

Get the interest rate, origination points, term length, and whether the loan is interest-only. Jaken Finance Group sizes qualified fix-and-flip bridge at 8.99%–13.5% IO depending on experience tier and leverage — but total cost includes points, extension fees, and draw inspection charges.

Confirm both caps:

Metric	What to ask	Why it matters
LTC	Max % of purchase + rehab	Drives cash to close
ARV cap	Max % of after-repair value	Binds on high-ARV deals
Rehab holdback	% of approved scope funded at draw	100% holdback vs partial changes float
Initial advance	Purchase portion at close	Affects week-one liquidity

Qualified sponsors often access up to 90% LTC with 100% documented rehab holdbacks. Caps vary by experience and property type — confirm yours in writing. Read understanding LTC and LTV before you negotiate.

Fees beyond interest

Ask about underwriting, appraisal or valuation, draw inspection, extension, and exit fees. Model all-in cost against your flip or BRRRR spreadsheet — not rate alone.

Fee line	Typical range	Red flag
Origination points	1–3% of loan amount	Quoted only verbally
Underwriting / doc	$500–$1,500	Due before conditional approval
Draw inspection	$150–$350 per draw	Not listed on term sheet
Extension	0.5–1% per month	”We’ll work it out”
Default rate	+3–5% over note rate	Buried in rider

Timeline and exit support

Ask for business days from complete file to wire, not marketing copy. You need a proof-of-funds letter in 24–48 hours when competing on a distressed listing.

If you are BRRRR-ing, ask about DSCR refi seasoning and documentation before you buy. Flip-only lenders may not help when your exit pivots to hold. Compare DSCR vs hard money before you lock strategy.

Compare total cost — not rate alone

Two lenders quoting 10.5% can produce $8,000–$15,000 swings in net spread once points, draw friction, and extension risk differ.

Worked example — nine-month hold

Non-owner-occupied LLC, Midwest SFR flip. Purchase + rehab $210,000, ARV $262,000.

Line item	Lender A (10.5%, 2 pts)	Lender B (9.99%, 3 pts)
Loan amount (90% LTC)	$189,000	$189,000
Origination (points)	$3,780	$5,670
Monthly IO (avg balance)	~$1,650 × 9	~$1,570 × 9
IO carry (9 months)	$14,850	$14,130
Draw fees (4 draws × $250)	$1,000	$1,000
All-in to exit	$19,630	$20,800

Lender B wins on rate but loses on total cost. Add extension risk: one 60-day extension at 1% on $189,000 adds $1,890 plus continued IO — often more than the rate spread between quotes.

Run your deal through the fix and flip calculator with dual exits: flip spread after 8% sale costs and DSCR at 1.0+ if the buyer pool thins.

Licensing, entity structure, and compliance

Hard money on investment property is business-purpose lending — but opacity on who funds your file is still a walk-away signal.

What to verify

Funding entity — legal name, state of formation, and who holds the note at close
Broker vs direct lender — brokers must disclose who underwrites and who wires
State registration — entity good standing and applicable NMLS or state lending licenses where required
Written disclosures — fee schedule and default triggers before you wire application money
No pressure tactics — legitimate operators send a conditional term sheet before large upfront fees

A lender who funds Charlotte bungalows understands different ARV comps than one who only does Phoenix new-build. Ask about recent closings in your state and asset class — duplex vs SFR vs mixed-use. State hubs: Illinois · Florida · North Carolina · Georgia.

Request reference deals or review platforms. Ask about default frequency and how they handle extensions — not just happy-path closings.

How to evaluate the draw process

Draw schedules should tie releases to milestones — demo, rough mechanicals, finish — not arbitrary calendar dates. The draw process separates disciplined lenders from operators who fund chaos.

Question	Strong answer	Weak answer
Who orders inspections?	Lender or approved third party with 48–72 hr turnaround	”Send photos whenever”
Draw funding after approval	1–3 business days to wire	”Up to two weeks”
Milestone structure	Line-item scope tied to % complete	Full rehab at close on gut rehabs
Scope changes	Documented change-order process	Re-underwrite or kill deal silently
Front-loaded finish	Usually no — disciplined	”We can advance 80% upfront”

Between acquisition funding and draw two, sponsors float demo, permits, and rough-in — often $15,000–$25,000 on a gut — while paying IO on the full balance. Ask how many draws the lender expects on your scope and whether inspection fees scale with deal size.

Surprises happen. Clarify extension policy, rate on extensions, and whether scope change requires re-underwriting or kills the deal before you sign. Understand notice periods, default triggers, and foreclosure timeline in your state — hard money is secured by the asset.

100% LTC program details · Common underwriting mistakes.

Red flags — walk away

Also see red flags in hard money lenders.

100% LTC promised without seeing scope, comps, and sponsor liquidity
No discussion of fees — rate quote only
Slow or opaque communication during pre-qual (it will not improve at close)
No draw schedule — “fund rehab at close” on heavy mechanical deals
Pressure to wire application fees before term sheet
Predatory prepayment structures hidden in fine print
Broker cannot name the funding entity or note holder

Side-by-side lender comparison workflow

Before you write offers, run at least two lenders on the same address, scope, and timeline. Spread on points and LTC caps often exceeds spread on rate.

Pre-qualify with purchase contract, three sold comps, and line-item scope
Request written term sheets with all fees itemized — same hold period for comparison
Model total cost to your realistic exit date, including one extension scenario
Verify draw calendar against contractor payment schedule
Confirm exit path — flip pro forma and DSCR backup on BRRRR files
Check licensing and references in your asset class

Get pre-qualified before you write offers. Sellers and listing agents treat proof-of-funds from a known lender as real — not a letter you printed yourself.

Match lender to strategy. Cosmetic flip in a suburban HOA subdivision needs different underwriting than a two-flat file in Chicago or a flood-zone duplex in Charleston.

Read the term sheet like a purchase contract. If it is vague on draws, extensions, or exit, fix it before earnest money.

Why investors choose Jaken Finance Group

We structure business-purpose hard money, fix-and-flip, and DSCR files nationwide with:

7–10 business day closes on complete files
Up to 90% LTC and 100% documented rehab draws at 8.99%–13.5% IO on qualified bridge
Market-specific underwriting — not city-name-swapped templates
Documentation paths for BRRRR → DSCR exits

Pre-qualify today · Submit a scenario · (833) 264-7776

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