The regulation is clear. That’s just how it is with subsidies ...
"Requirements for homeownership
Funding is provided for the first-time purchase, meaning the initial purchase or new construction of owner-occupied residential property in Germany. If your household (applicant as well as spouse or life partner or partner in a marital-like community or children) already owns a self-used, rented, usufructuary-used, gratuitously transferred, or vacant residential property in Germany for permanent use, funding through the Baukindergeld is not possible. The cut-off date is the date of the notarized purchase contract signed by the buyer(s), the building permit, or the earliest possible date of commencement of construction according to the building notification for the newly acquired or newly created residential property. [...]" (KfW)