Term sheet vs commitment letter: what is binding?
A term sheet is an early-stage, generally non-binding proposal of loan terms issued before full underwriting, while a commitment letter comes later, typically after the appraisal and most underwriting conditions are satisfied, and represents the lender's actual, more binding agreement to fund subject to a short remaining list of conditions. Moving from one to the other usually takes 2 to 6 weeks, and the commitment letter is what you can rely on to schedule a closing date with confidence.
Side by side
| Term sheet | Commitment letter | |
|---|---|---|
| When issued | Before or at the start of full underwriting | After underwriting is substantially complete |
| Binding? | Generally not, on either side | More binding on the lender, subject to remaining conditions |
| Basis | Application, credit, stated deal terms | Full underwriting including appraisal, environmental, title |
| Conditions remaining | Many: appraisal, environmental, title, entity docs | Few: usually final documents, insurance binder, funding logistics |
| Use | Compare lenders, authorize third-party reports | Schedule closing with confidence |
Why the distinction matters
Relying on a term sheet as if it were a commitment letter is a common mistake. A term sheet can still fall apart if the appraisal comes in low, the environmental report finds an issue, or underwriting uncovers something in your financials. A commitment letter means those major risks have already been cleared.
What moves a deal from term sheet to commitment letter
- Appraisal ordered and reviewed.
- Environmental report (if applicable) reviewed.
- Title report reviewed and any issues cleared.
- Entity documents submitted and reviewed.
- Full underwriting of your financials completed.
- Any specific conditions from the term sheet satisfied.
What can still change between commitment letter and closing
Even a commitment letter usually has a short list of remaining items: an insurance binder naming the lender, final entity documents, a payoff statement for any existing debt, and sometimes a final title update. Rate can occasionally still move if it was not locked, though many commitment letters lock the rate.
Timing your other plans around each
Do not schedule a moving date, tell a seller a firm closing date, or lock in other commitments based on a term sheet alone. Once you have a commitment letter, the remaining risk of the deal falling apart is much lower, and firm dates become reasonable.
A worked example
A borrower receives a term sheet on Monday quoting $800,000 at 7.25 percent. The appraisal comes back the following week at a value supporting only $760,000. The commitment letter, when issued, reflects the revised $760,000 amount, not the original term sheet figure, because the term sheet was never a final commitment.
How CommFi handles it
Our lending desk is clear at every stage about whether you are looking at a term sheet or something closer to a commitment, so you know what is still at risk. It funds direct when it fits, and when the desk searches a database of 7,000+ lenders for term sheets, it tracks each one through to commitment so you know exactly where the deal stands. Zero upfront fees.
Related reading
Related questions
- What is the difference between a term sheet and a commitment letter?
- A term sheet is an early, largely non-binding proposal issued before full underwriting. A commitment letter comes later and represents the lender's actual agreement to fund, subject to fewer remaining conditions.
- Can loan terms change between the term sheet and commitment letter?
- Yes, most commonly if the appraisal comes in different than expected, which can change the loan amount.
- Should I schedule a closing date based on a term sheet?
- No. Wait for a commitment letter, since a term sheet can still fall apart during underwriting.
- What conditions typically remain after a commitment letter is issued?
- Usually final documents, an insurance binder, a payoff statement for existing debt, and sometimes a final title update.
- Is a commitment letter fully guaranteed?
- It is much more reliable than a term sheet but can still have a short list of remaining conditions that must be satisfied before funding.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.