<PAGE>
 
                                                                    EXHIBIT 10.2

                            PRIME HOSPITALITY CORP.

July 25, 1997


Homegate Hospitality, Inc.
111 Congress Avenue
Suite 2600
Austin, Texas 78701

     Re:  $65,000,000 Interim Secured Construction Term Loan Facility
          -----------------------------------------------------------

Dear Sirs:

     On the date hereof, Homegate Hospitality, Inc. ("you", "Homegate" or the
                                                             --------
"Acquired Company"), a subsidiary of Prime Hospitality Corp. ("Prime Sub") and
 ----------------                                              ---------
we ("we", "us", "Prime" or the "Lender") are executing an Agreement and Plan of
                 -----          ------
Merger dated as of the date hereof (the "Merger Agreement") pursuant to which
                                         ----------------
Homegate and Prime Sub will merge (the "Merger"), with Homegate being the
                                        ------
surviving corporation. Pursuant to the Merger Agreement, Prime has agreed to
enter into this Commitment Letter. You have further advised us that you intend
to form a new, bankruptcy remote, wholly-owned direct subsidiary (the
"Borrower") for the purpose of acquiring certain hotel sites and hotel
 --------
development of certain existing sites specified on Schedule 1 hereto, and
pending the consummation of the Merger desire to obtain a $65,000,000 interim
secured construction term loan facility (the "Facility"). The obligations of the
                                              --------
Borrower under the Facility will be fully guaranteed on a full recourse basis by
Homegate.

      In connection with the foregoing, Prime is pleased to advise you of its
commitment to provide 100% of the total principal amount of the Facility as
described in the term sheet attached hereto as Annex I (the "Term Sheet") and
                                                             ----------
subject to the conditions set forth below and in the Term Sheet.  All
capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Term Sheet.

     The commitment of Prime hereunder is subject to satisfaction of each of the
following in a manner acceptable to Prime:

          (a) satisfaction of each of the terms and conditions set forth herein;

          (b) satisfaction of each of the terms and conditions set forth in the
     Term Sheet; and

          (c) the negotiation, execution and delivery of definitive
     documentation with respect to the Facility consistent with the Term Sheet
     and otherwise reasonably satisfactory to Prime.

     Furthermore, the commitment of Prime hereunder is based upon the financial
and other information regarding the Borrower and the Acquired Company previously
provided to Prime in connection with the Merger Agreement, and the commitment of
Prime hereunder is subject to the condition, among others, that there shall not
have occurred after the date hereof any material adverse change in the business,
assets, liabilities (actual or contingent), operations, condition (financial or
<PAGE>
 
July 25, 1997
Page 2


otherwise) or prospects of the Borrower and the Acquired Company and their
subsidiaries taken as a whole.  You acknowledge and agree that Prime may share
with any of its lenders any information relating to the Facility, Homegate, the
Borrower and their subsidiaries and affiliates.

     It is understood and agreed that Prime intends to obtain all or part of the
funds necessary to fulfill its obligations under this Commitment Letter to
provide the Facility by entering into new credit agreements with various
institutions or amending its existing credit agreements, although the execution
and delivery of such credit agreements or amendments (or the availability of
funds thereunder) are not in any way a condition to the obligations of Prime
hereunder.  Homegate and the Borrower will cooperate (including by making
management available to such institutions and lenders and by providing financial
and other information to such lenders) in all respects with Prime's lenders in
connection with such credit agreements or amendments.

     You hereby represent and warrant that all the representations and
warranties of Homegate in the Merger Agreement are true and correct.

     By executing this Commitment Letter,  Homegate agrees to reimburse Prime
from time to time on demand for all reasonable out-of-pocket fees and expenses
(including, but not limited to, the reasonable fees, disbursements and other
charges of Willkie Farr & Gallagher, counsel to Prime) incurred in connection
with the Facility and the preparation of definitive documentation for the
Facility and the other transactions contemplated hereby (including the Interim
Loans).

     The provisions of the immediately preceding paragraph shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this Commitment
Letter or the commitment of Prime hereunder.

     Prime further agrees to provide to Homegate interim secured loans ("Interim
Loans") of (a) $2,000,000 on July 25, 1997, which shall bear interest at 9.18%
per annum, and (b) up to $3,400,000, which shall bear interest a a rate equal to
one month LIBOR (London interbank offerred rate as published in the Wall Street
                                                                    -----------
Journal)  as of the business day prior to the making of the loan plus 3.50%;
-------
provided, however, Prime shall not be obligated to make Interim Loans in excess
--------  -------
of 50% of the value (as determined by Prime in its sole discretion but will not
exceed the cost basis of Homegate)  of hotel development properties (the
"Interim Loan Sites") provided by Homegate acceptable to Prime in its sole
 ------------------
discretion (it being understood that the sites listed on Exhibit A hereto are
acceptable).  The Interim Loans shall mature on the earlier of the closing of
the Facility or September 15, 1997, and will be secured by the Interim Loan
Sites.  The form of documentation to evidence the Interim Loans (including the
collateral for such loans) shall be reasonably acceptable to Prime and Homegate
and subject to such reasonable closing conditions (including receipt of legal
opinions and irrevocable commitments of title insurance companies to issue title
insurance policies) as Prime shall reasonably require. The initial drawings
under the Facility will be used to repay the Interim Loans.

     This Commitment Letter may not be assigned by Homegate or the Borrower
without the prior written consent of Prime.

     This Commitment Letter shall be effective only upon the execution and
delivery of this Commitment Letter by the parties hereto and of the Merger
Agreement by all parties thereto.
<PAGE>
 
July 25, 1997
Page 3


     This Commitment Letter may be executed in counterparts which, taken
together, shall constitute an original.  This Commitment Letter, together with
the Term Sheet, embodies the entire agreement and understanding between Prime,
Homegate and the Borrower with respect to the Facility and supersedes all prior
agreements and understandings relating to the Facility.  No party has been
authorized by Prime to make any oral or written statements inconsistent with
this letter.

     THIS COMMITMENT LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW.  EACH PARTY HERETO WAIVES TRIAL BY JURY IN CONNECTION WITH ANY
DISPUTE WHICH MAY ARISE OUT THIS COMMITMENT LETTER.

Very truly yours,


PRIME HOSPITALITY CORP.


By:
   -----------------------------------
  Name:
       -------------------------------
  Title:
        ------------------------------
<PAGE>
 
July 25, 1997
Page 4


ACCEPTED AND AGREED TO AS OF
July 25, 1997:


HOMEGATE HOSPITALITY, INC.


By:
   -----------------------------------
  Name:
       -------------------------------
  Title:
        ------------------------------
<PAGE>
 
                                    Annex I
                                    -------

                         HOMEGATE SPECIAL PURPOSE CORP.
                         SUMMARY OF TERMS & CONDITIONS

          $65,000,000 INTERIM SECURED CONSTRUCTION TERM LOAN FACILITY
                                 JULY 25, 1997

BORROWER:           A newly formed, special purpose, bankruptcy remote company
                    wholly owned by Homegate Hospitality, Inc. ("Homegate"),
                    whose sole purpose will be to own and develop certain
                    collateral assets described below and borrow the Loan
                    Proceeds.

GUARANTOR:          The Facility will be guaranteed by Homegate Hospitality,
                    Inc. (the "Homegate Guarantee"). The guarantee shall be a
                    guarantee of payment and not of collection.

LENDER:             Prime Hospitality Corp. ("Prime" or the "Lender") or a
                    wholly owned subsidiary of Prime.

FACILITY:           An aggregate principal amount of up to $65,000,000 interim
                    secured construction term loan to be available under the
                    conditions hereinafter set forth. All Loans may be prepaid,
                    as set forth herein, but no amount prepaid may be
                    reborrowed.

USE OF PROCEEDS:    The proceeds of the Facility shall be used: (i) to refinance
                    the outstanding principal balance of all indebtedness owed
                    by the Borrower or Homegate to Prime, and (ii) for
                    acquisition of sites and hotel development of sites
                    (collectively, the "Sites") set forth on Schedule 1 hereto
                    or as approved from time to time by the Lender in its sole
                    discretion.

MATURITY:           The Facility shall terminate and all amounts outstanding
                    thereunder shall be due and payable in full at the earlier
                    of (i) April 1, 1998, (ii) the date on which Homegate enters
                    into any agreement (other than the Merger Agreement (as
                    defined below)) with respect to any Alternative Proposal (as
                    defined in the Merger Agreement) or otherwise relating to
                    the merger or sale of substantially all of the assets of
                    Homegate and (iii) four months after the termination of the
                    Merger Agreement.

SECURITY:           The Homegate Guarantee will be secured by a first priority
                    perfected security interest in all of the capital stock of
                    the Borrower (or, if the Borrower is a limited partnership,
                    in the capital stock of the general partner of the Borrower
                    and all general and limited partnership interests of the
                    Borrower). The Loans will be secured by a first priority
                    perfected security interest in all real and personal
                    property, now owned or hereafter acquired, wherever located,
                    of the Borrower, including the Sites (collectively, the
                    "Collateral").
<PAGE>
 
July 25, 1997
Page 2


FACILITY FEE:       The Borrower will pay to the Lender on the Closing Date a
                    facility fee equal to 1.00% of the aggregate principal
                    amount of the aggregate amount of the Facility.

INTEREST RATE       One month LIBOR plus 3.50%; provided that the interest rate
                    shall increase to one month LIBOR plus 5% on the date (the
                    "Interest Increase Date") that is the earlier of (a)
                    November 30, 1997 and (b) the date of any termination of the
                    Merger Agreement (other than a termination as a result of a
                    breach by Prime). Prior to the Interest Increase Date all
                    interest on the Loans shall accrue and be added to the
                    principal amount of the Loans; from and after the Interest
                    Increase Date, all interest shall be payable monthly,
                    commencing December 15, 1997. As used herein, "LIBOR" means
                    the London Interbank Offered Rate as determined from time to
                    time by Prime.

                    The interest rate on LIBOR Loans shall be calculated on the
                    basis of the actual number of days elapsed in a year of 360
                    days.

                    A default rate shall apply on all Loans in the event of
                    default at a rate per annum of 2% above the otherwise
                    applicable interest rate.


VOLUNTARY
PREPAYMENTS:        At its option, the Borrower may prepay Loans in whole or in
                    part (subject to minimum principal prepayments to be agreed
                    upon) without premium or penalty limited to the last day of
                    the applicable interest period for Loans bearing interest at
                    the LIBOR rate (unless the Borrower pays break-funding costs
                    as provided in the documentation executed in connection with
                    the Facility).

MANDATORY
PREPAYMENTS:        The Facility will be prepaid by the amount of any insurance
                    or condemnation proceeds received in respect of the
                    Collateral in excess of $500,000 in the aggregate for all
                    the Collateral.

AVAILABILITY:       The outstanding Loans may not, in any event, exceed a
                    borrowing base, which will restrict availability to no
                    greater than 75% of cost basis retained in the Borrower of
                    the Collateral. No Loans will be made after the earlier of
                    (a) November 30, 1997 and (b) the date of any termination of
                    the Merger Agreement (except solely as a result of a breach
                    by the Lender under the Merger Agreement). Funding of the
                    Loans will not, as of any particular date, be in excess of
                    amounts set forth in the budget (previously approved by
                    Prime and Homegate) as of such date.

CONDITIONS
PRECEDENT
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July 25, 1997
Page 3


TO CLOSING:         The funding of the Facility will be subject to satisfaction
                    of the conditions precedent reasonably deemed appropriate by
                    Prime for construction loans and for this transaction in
                    particular, including but not limited to the following:

                    (i) The negotiation, execution and delivery of definitive
                    documentation with respect to the Facility satisfactory to
                    Prime and its counsel and the payment of fees required to be
                    paid to the Prime in connection with the Facility.

                    (ii) The Lenders shall have received (a) satisfactory
                    opinions of counsel to the Borrower and the Guarantor, (b)
                    such corporate resolutions, certificates, and other
                    documents as the Lender shall reasonably require and (c)
                    satisfactory evidence that the Lender holds a perfected,
                    first priority lien in all collateral for the Facility and
                    the Homegate Guarantee, subject to no other liens except for
                    permitted liens.

                    (iii)  The Lender shall have received reports prepared in
                    usual and customary form and scope by the Borrower's
                    environmental consultants with respect to all the existing
                    Sites and such reports shall not disclose any material
                    adverse condition that was not disclosed in the Merger
                    Agreement dated as of July 24, 1997 (the "Merger Agreement")
                    among Prime, Homegate and a wholly owned subsidiary of
                    Prime.

                    (iv) The Loan Documents will provide for conditions to each
                    borrowing which are usual and customary for construction
                    loans, including evidence of feasibility of the project to
                    be constructed on each site and the availability of
                    sufficient funds and governmental and nongovernmental
                    consents, approvals and permits in order to complete
                    construction of the related project, availability of
                    utilities.

                    (v) The Lender shall be satisfied that the Borrower is a
                    special purpose, bankruptcy remote, corporation or limited
                    partnership wholly owned by Homegate.

                    (vi) Receipt of all governmental, shareholder and material
                    third party consents and approvals necessary or desirable in
                    connection with the Facility.

                    (viii)  There shall not have occurred a material adverse
                    change since December 31, 1996 in the financial, business,
                    results of operations or prospects of  the Guarantor and its
                    Subsidiaries taken as a whole except as may be otherwise
                    disclosed in the Merger Agreement.

                    (ix) Absence of (a) any order, decree, judgment, ruling or
                    injunction by any court or governmental authority which
                    restrains the 
<PAGE>
 
July 25, 1997
Page 4


                    consummation of the transactions contemplated by the
                    definitive loan documents and (b) any pending or threatened
                    action, suit, investigation or proceeding which could
                    materially adversely affect the ability of the Borrower or
                    the Guarantor to perform any of their respective obligations
                    under the loan documents for the Facility or the ability of
                    the Lender to exercise their rights thereunder.

                    (x) The Lender shall have received evidence of the issuance
                    of title insurance policies issued by title insurance
                    companies acceptable to it and on such form as is acceptable
                    to the Lender, including endorsements required by the Lender
                    or irrevocable commitments to issue such policies.

                    (xi)  All representations  and warranties shall be true and
                    correct as of the date of each borrowing except to the
                    extent that such representations relate to an earlier date.
                    At the time of each borrowing there shall not exist any
                    event of default or any event (other than certain immaterial
                    events) which, upon the giving of notice or the lapse of
                    time, shall constitute an event of default.


REPRESENTATIONS &
WARRANTIES:         Usual and customary for transactions of this type, to
                    include without limitation as to the Guarantor and the
                    Borrower: (i) corporate status; (ii) corporate power and
                    authority/enforceability; (iii) no violation of law or
                    contracts or organizational documents; (iv) no material
                    litigation; (v) specified financial statements fairly
                    present financial condition and results of operations,
                    projections based on reasonable assumptions and no material
                    adverse change; (vi) no required governmental or third party
                    approvals; (vii) use of proceeds/compliance with margin
                    regulations; (viii) status under the Investment Company Act;
                    (ix) ERISA; (x) environmental matters; (xi) perfected
                    security interests; (xii) payment of taxes; and (xiii)
                    representations and warranties in the Merger Agreement are
                    true and correct.

COVENANTS:          Usual and customary for transactions of this type, which
                    shall be applicable to Homegate and the Borrower and shall
                    include without limitation: (i) delivery of financial
                    statements and other reports; (ii) delivery of compliance
                    certificates; (iii) delivery of notices of default, material
                    litigation and material governmental and environmental
                    proceedings; (iv) compliance with laws; (v) payment of
                    taxes; (vi) maintenance of insurance; (vii) prohibition on
                    liens; (viii) prohibition on mergers, consolidations and
                    sales of assets (except as contemplated by the Merger
                    Agreement); (ix) limitations on debt; (x) limitations on
                    dividends and stock redemptions and the redemption and/or
                    prepayment of other debt; (xi) limitations on loans and
                    investments; (xii) limitations on sale-leaseback
                    transactions; (xiii) an agreement to 
<PAGE>
 
July 25, 1997
Page 5


                    make books and records available for inspection; (xiv)
                    compliance with covenants and agreements contained in the
                    Merger Agreement; (xv) an agreement that the only business
                    activity of the Borrower shall be the ownership and
                    development of the Sites; (xvi) ERISA; (xvii) no funding of
                    the Loans except in accordance with a budget to be agreed
                    upon; (xviii) limitation on transactions with affiliates;
                    (xix) limitation on modification of material agreements. All
                    covenants relating to the Guarantor shall contain exceptions
                    to the extent that similar covenants contained in the Merger
                    Agreement contain exceptions.

EVENTS OF DEFAULT:  Usual and customary in transactions of this nature, which
                    shall be applicable to Homegate and the Borrower and shall
                    include, without limitation: (i) nonpayment of principal or
                    nonpayment within five days when due of  interest, fees or
                    other amounts; (ii) violation of covenants in the definitive
                    loan documents or in the Merger Agreement and continuation
                    of such violation for 30 days after notice thereof from the
                    Lender to the Borrower; (iii) inaccuracy of representations
                    and warranties; (iv) failure to pay debt service on other
                    indebtedness when due or acceleration of such other
                    indebtedness; (v) bankruptcy; (vi) material judgments; (vii)
                    Homegate Guarantee ceasing to be in full force and effect;
                    (viii) failure of lien on Collateral to be first priority
                    perfected lien; and (ix) material adverse change in the
                    financial condition of the Guarantor or the Borrower.

WAIVERS &
AMENDMENTS:         Only by consent of all parties to the definitive credit
                    documentation.

INCREASED COSTS/
CHANGE OF
CIRCUMSTANCES:      The credit agreement for the Facility will contain customary
                    provisions protecting the Lender in the event of
                    unavailability of funding, illegality, capital adequacy
                    requirements, increased costs (all of which provisions shall
                    permit the Lender to impose costs on the Borrower solely to
                    the extent that such costs are similarly imposed on the
                    Lender by the institutions providing funds to the Lender),
                    withholding taxes, prepayments and funding or breakage
                    losses.

INDEMNIFICATION:    The Lender will be indemnified against all losses,
                    liabilities, claims, damages or expenses relating to their
                    loans, the Borrower's use of loan proceeds or the
                    commitments, including but not limited to reasonable
                    attorneys' fees and settlement costs. This indemnification
                    shall survive the termination of the credit agreement for
                    the Facility.

GOVERNING LAW:      New York

EXPENSES:           Borrower will pay all reasonable costs and expenses
                    associated with the preparation and enforcement of all
                    documents executed in connection with the Facility,
                    including without limitation, the legal fees of Willkie 
<PAGE>
 
July 25, 1997
Page 6


                    Farr & Gallagher, counsel to Prime, regardless of whether or
                    not the Facility is closed.


THIS TERM SHEET IS PROVIDED AS AN OUTLINE ONLY AND DOES NOT PURPORT TO SUMMARIZE
ALL THE CONDITIONS, COVENANTS, REPRESENTATIONS, WARRANTIES AND OTHER PROVISIONS
WHICH WOULD BE CONTAINED IN DEFINITIVE LEGAL DOCUMENTATION FOR THE FACILITY
CONTEMPLATED HEREBY.
<PAGE>
 
July 25, 1997
Page 7


                                                                      Schedule 1

                                 Approved Sites
                                 --------------

          (1)   Beaverton, Oregon
          (2)   Park Central Mall, Phoenix, Arizona
          (3)   Indianapolis (Michigan Road), Indiana
          (4)   Durham (Miami Boulevard & I-40), North Carolina
          (5)   Houston Medical Center, Houston, Texas
          (6)   Webster, Houston, Texas
          (7)   Overland Park, Kansas
          (8)   44th & Oak, Phoenix, AZ
          (9)   Lenexa, Kansas
          (10)  Denver Tech, Colorado
          (11)  Park Central, Dallas, TX
          (12)  Chandler & I-10, Arizona
          (13)  Indianapolis (Airport Site), Indiana
          (14)  Towne Lake Site, Austin, Texas
          (15)  Stafford, Fort Bend County, Texas
          (16)  Las Colinas, Irving, Texas
          (17)  Orlando (Maitland), Florida
          (18)  1-10 (Galleria Site), Houston, Texas
          (19)  Metro Center (I-17 & Cholla), Phoenix, Arizona
          (20)  Cypress Spring, Florida
          (21)  Las Vegas, Nevada
          (22)  Hillsboro, Oregon
          (23)  Jolleyville, Austin, Texas
          (24)  Rutherford, Austin, Texas
<PAGE>
 
July 25, 1997
Page 8


                                                                       Exhibit A

                                 Interim Sites
                                 -------------

          (1)  Beaverton, Oregon
          (2)  Park Central Mall, Phoenix, Arizona
          (3)  Hillsboro, Oregon
          (4)  Durham (Miami Boulevard & I-40), North Carolina
          (5)  Houston Medical Center, Houston, Texas
          (6)  Webster, Houston, Texas