Construction financing with KfW - commitment interest

Hello everyone,
I have been searching the internet for several weeks now regarding financing, funding, and so on. Today I came across this page and browsed through the forum.
Now a bit about me/us: We are a family of four (kids 2 and 4 years old), my net income is 610,-, husband’s net income is 2245,- plus child benefit of 368,-, equity of 20,000,- is available.
A few days ago we reserved a plot of land (163 sqm) for a mid-terrace house. The preliminary contract will be sent to us for review mid/end of January. Purchase price 55,600,- plus 2,780,- ancillary costs. Purchase price is due after signing and entry in the land register, estimated beginning of February 2010.
Our house (without basement) will be built by IGB, turnkey with painting and flooring, purchase price 141,900 Euros (purchase price 131,900,-, the rest was estimated by us, since we will do painting and flooring ourselves, ancillary construction costs are estimated at 12,000,- plus 4,000,- sweat equity.
So, we want to combine the financing with KfW. We still have 2 Riester contracts running (started Nov. 2009) but are rather critical of financing with Wohnriester. We were overwhelmed with it last year and in hindsight... not for us. Will be cancelled again.
We have an offer from Ing-Diba. 79,000,- with 4.7% effective interest, 10 years fixed interest combined with KFW 124 65,000,- at 3.8% and KfW 154 with 50,000,- at 3.9%. This results in a monthly burden of 955,- Euro.
Our problem! the commitment interest. We pay for the plot at the beginning of February, but the development will only be finished in September 2010! So we have quite a long double burden. From February about 215,- Euro interest for the already paid plot and from July 1 then the commitment interest for the rest of the sum at 0.25% per month. And probably more monthly from construction start.
The commitment interest is due on the main loan after 6 months at 0.25% (79,000,- total), KfW program 124 (65,000,-) from the 5th month at 0.25% and KfW program 154 (50,000) after 12 months.
This thought still makes us quite nervous at the moment, as we have no idea about the monthly amounts that will come at us.
The main problem for me is the fixed-term employment contract that is repeatedly extended by 6 months. Many banks do not count my salary of 610,- Euro = insufficient income = no loan. Ing-Diba was not so picky.
Maybe you can take away some of our concerns regarding the additional burden of the commitment interest.
Best regards
Crazy Mamba

Hello Crazy_Mamba,

if you have to pay for the property at the beginning of February 2010, you will already have to use the first EUR 38,000 from the financing (purchase price + incidental costs less equity).

You will then already pay interest on this amount (at 4.7%) = EUR 148.83.

From around June (depending on when your loan contracts were created plus 6 months) you will then additionally pay the commitment interest for the remaining EUR 41,000 + 65,000 (at 3% p.a. = EUR 265) and will then be at about EUR 413 monthly in addition to your rent.

The commitment interest for the second KfW loan will hardly be charged. Because within 12 months the house should probably have been handed over ready for occupancy.

What binding handover date was agreed in the contract with IBG?

Best regards M. Thiemann

Hello Mr. Thiemann,

thank you very much for your reply.

According to the development company, we can start by the end of September at the latest. Hmm, that leaves a lot to the imagination. If all goes well, it will be finished by early September, but of course nothing has been set in writing. Our builder will begin the shell construction as soon as they get the OK from the development company. A somewhat tricky situation... affordable land + unfortunately a few too many variables. The house is to be handed over after 5 months of construction time.

In the meantime, we have moved away from Ing-Diba and have instead contacted our house bank. They now have all relevant data and will let us know in the next few days whether they can/want to grant us a loan in this amount. After all, we have a score of 1c... that gives hope. After that, further details will be discussed. The advisor and his colleague recommended a combination of Riester and a home savings contract along with a standard annuity loan. At first, as you could already read in the first post, we were quite skeptical or rather opposed. We were probably just advised incorrectly before. At least we want to hear more about the Bauspar/Riester combination this Monday.

The annuity loan itself has an interest rate of 4.2% and runs for 10 years; the Riester combination is 3.65% for the first 10 to 13 years and then continues at 2.95% until full repayment. Although the repayment will be somewhat higher, at least we have a long fixed interest period on part of the sum.

At least the advisor was able to alleviate our concerns about double burden. My house bank offers a provision period of 12 months. Thus, only the interest on the land will be incurred, and from the start of construction, this will be adjusted according to the construction progress.

Of course, I will keep you updated on how we decide.

Best regards
Crazy_Mamba

Hello Crazy_Mamba,

when it comes to the Riester subsidy, I still think about the deferred taxation in retirement. Plan it out carefully so that you know what additional tax burden will arise from the Riester subsidy in old age.

The interest rates look attractive, indeed.

Lately, I have mostly preferred Ing-Diba financing because Ing-Diba still subsidizes the KfW funds (at least for now) with 0.25%.

Best regards M. Thiemann

Hello Mr. Thiemann,

yes, we will also consider the so-called deferred taxation and, of course, have it calculated before we make a decision.

The interest rate concessions from Ing-Diba are interesting, but the catch for us is the provision interest after 6 months. Unfortunately, Ing-Diba is not willing to negotiate on this. We are still paying rent for a single-family house here. From this point of view, the offer from our bank with 12 months provision-free time is very interesting.

We are now curious about what other options might open up for us. We are very much looking forward to Monday. We have a second meeting with our house bank then.

Best regards Crazy_Mamba