Combination of Bank & KFW Loan for Home Purchase and Renovation

Hello dear members,

my partner and I are interested in acquiring and renovating a 1960s single-family house. Our desired financing would be a combination of 3 individual loans, all taken out through the same bank: Loan 1: Regular bank loan Loan 2: KFW 124 Home Ownership Program Loan 3: KFW 261 Residential Building (Goal: EE 70, but 85 would also be acceptable)

We would purchase the house with equity as well as Loan 1 & 2. The renovation would then be paid for with Loan 3 and additional equity (this equity for the renovation will not be part of the loan contract, i.e. officially we would only renovate for €150k [= full amount KFW 261]). We are currently in close contact with 2 financial advisors who have already presented us with financing proposals covering the 3 loan components above (all through the same bank). However, despite discussions with the financial advisors, we honestly do not yet fully understand exactly how the handling of the KFW 261 loan works. (we are slowly starting to wonder whether we are just incredibly slow to understand - or the financial advisors are not optimal at explaining - or perhaps both)

While one financial advisor pointed out that we can only finally sign the entire loan contract (with all 3 components) after submitting the Confirmation of Application (BZA) - the other financial advisor explained to us that it is also possible to conclude the loan contract without the Confirmation of Application (BZA), but the KFW 261 loan can only be disbursed after submitting the Confirmation of Application (BZA).

Our understanding is that a Confirmation of Application (BZA) requires a house inspection with the EE advisor/expert and can currently take several months including waiting times and creation. Creating a Confirmation of Application (BZA) before the conclusion of the purchase contract for the house is therefore not feasible. At the same time, concluding 2 loans at separate times (1x for house purchase / 1x for renovation a few months later) is also not reasonable/difficult to implement according to the financial advisors, since this would practically only be possible with the same bank (due to collateral through the land charge). Therefore, the entire financing would have to be arranged in one go.

Our question now would be: Is it possible to conclude such a loan contract, receive the money from Loan 1 & 2 already for the house purchase, and then submit the Confirmation of Application (BZA) afterwards and thus receive the amount from Loan 3? Or must the Confirmation of Application (BZA) already be available in order to conclude the overall contract at all? We especially want to have the security that the bank cannot "pull out" after proper submission of the Confirmation of Application (BZA) – because unfortunately, one increasingly hears that banks reject KFW loans under questionable arguments but at the same time refer to their own in-house loans. And especially in the current situation with enormous interest rate fluctuations, we simply need the security that the financing stays within the defined framework.

Maybe one of you is familiar with this or has completed a similar financing in the past – and can shed some light on the matter. We are incredibly grateful for any response!

Thank you and best regards

I would split it into two processes. 1+2 now and 3 later. If the house does not have external insulation, try to achieve KFW70EE, then you could possibly still integrate WPB and would have a 25% repayment bonus.

Is it possible to conclude such a loan agreement, to receive the money from Loan 1 & 2 already for the house purchase and only afterwards submit the confirmation for the application (BZA) and thus receive the amount from Loan 3? Or must the confirmation for the application (BZA) already be available in order to conclude the overall contract at all?

If everything is to proceed properly, the loan agreement cannot be obtained. Why? Because the bank must have the confirmation for the application (BZA) in order to submit the financing to the KfW. If they give you a contract anyway – we do not do such things – the following problems can arise: - KfW increases the interest rates and the bank is fooled because it has already promised you a cheaper loan - KfW lowers the interest rates and you are fooled because you do not get the lower rates. Or not, because the bank is not allowed to charge higher interest rates than those prescribed by the KfW upon approval and thus the contract may not even be valid - KfW changes the conditions and both you and the bank are fooled - Funds at the KfW are exhausted but the bank has already promised such a loan etc. There are hundreds of reasons why banks do not do such things, because in the end some party loses. In doubt, both parties may lose. So the correct procedure is Loan 1 & 2 immediately. The loan can only be applied for at the KfW when the energy consultant has done their homework.

Thank you very much for your answers!
@KartenausNRW: Thanks for the explanation, it absolutely makes sense from that perspective.

However, we are advised against two separate loans from all sides. Because once we have a loan from Bank A for the purchase of the house, we can basically only apply for the KFW 261 loan for the renovation at Bank A as well. A second Bank B will hardly be satisfied with a subordinate mortgage, especially given the low margin of the KFW loan.
Here we see a big risk that Bank A (which is aware of the necessity of the renovation loan) will reject the subsequent application for the KFW loan for flimsy reasons and instead push us toward a bank loan. Because basically, we would have no choice but to swallow that pill and take out the bank loan. Added to that is the not unlikely risk that interest rates will rise in the coming months before we receive the confirmation for the application (BZA) number.
Against this background, this situation would be too risky for me and I would rather forgo the KFW loan and take the 150k for the renovation directly from the bank. Somewhat odd, but at least then I know exactly where I stand from the beginning and at least have no risk of unpleasant surprises from the financing side.

All in all, really sobering. I really wonder who the intended recipient of this loan is supposed to be. It’s at most children who take over their parents’ home. Or investors who have an energy efficiency consultant on hand who can handle this quickly.
In the old houses in our city, only retirees aged 80+ actually live. None of them would think of taking out a KFW loan over 150k€ for an energy-efficient renovation. Buying and renovating with the 261 loan, as we plan to do, is practically not possible...

All in all, really sobering. I really wonder who is supposed to be the target group for this loan. At most, these are children taking over their parents' house.

For example, us. Bought an existing house 9 years ago, now pushing for renovations.
But since your concerns are theoretical anyway, that is secondary. I don’t understand why one should forego the KfW loan from the outset.

Alternatively, you could also finance the purchase variably without KfW124 and then, as soon as the renovation is due, finance everything together with Bank C using Bank loan C and 261. You just have to calculate it yourself. Welcome to the hard life of property owners / builders.

In the old houses in our town, it's basically only pensioners aged 80+ who live there. None of them would think of taking out a KFW loan of 150k€ for energy-saving renovations. Buying and renovating with 261, as we plan, is practically not possible...

Sure it is possible, but it is always several steps. You will have to bite into some apple, take some risk.

We had also planned the combination of the bank plus KFW 124. Everything was submitted on time, the problem is that KFW has a fixed deadline during which you can secure the current interest rate. Since the bank took too long (illness period of the bank employees, etc.), the deadline (10 days!?) ran out and the interest rates increased significantly. Well, bad luck for us :/ Bank and KFW then say tough luck...