Loan Offer: Contradictory, Unrealistic Conditions

Hi everyone,

after having silently followed along for a while, the topic of building a house is becoming more and more relevant for me now, even if not at the best time. Oh well!

After a financing inquiry, I have now received a loan offer, and there are some passages in it that don’t make sense to me or seem contradictory. I hope the experienced ones among you can help me.

My first question concerns the following passage in the general loan conditions that were included with the contract offer:
"The borrower is obligated to meet the disbursement requirements and take up the loan within six months after the financing commitment (i.e., after the creation of the contract offer). Failure to fulfill these obligations entitles the lender to withdraw from the loan agreement."

Construction projects usually take significantly longer including the planning phase and lead time, and banks also know about free provision periods of, for example, in my case one year. That seems contradictory and detached from reality. If, for instance, my construction start is only one year after contract signing, would I be at risk that the bank can back out at any time? That surely cannot be what is meant.

My second question concerns the disbursement requirements for the loan. The offer states that before the first disbursement, all invoices for the entire construction costs must have already been submitted. That doesn’t make sense either because one works with construction phases and pays out in installments rather than all at once. Especially since the construction companies and trades surely wouldn’t wait half a year or more to have their invoices paid until the house construction is complete. What is your opinion on this? Are these simply general formulations that one should not take seriously? But what if push comes to shove?

Thank you very much in advance for your answers!

Best regards
Ubibubi

I think you misunderstood.

Normally, the loan agreement is concluded shortly before the start of construction.
That way, there is no such risk as you mentioned.

Then the loan is withdrawn gradually.
If the house construction is not completed within 1 year, commitment fees are charged on the undrawn portion.

My first question concerns the following passage in the general loan conditions that were attached to the contract offer: "The borrower is obliged to meet the disbursement conditions and to accept the loan within six months after the financing commitment (therefore after the contract offer is made). Failure to fulfill these obligations entitles the lender to withdraw from the loan agreement."

That is (more or less) normal. Six months is quite short, though. We usually put in 12 months. But that has nothing to do with commitment interest or the loan having to be fully accepted after that time.

My second question concerns the disbursement conditions for the loan. The offer states that all invoices for the total construction costs must already have been submitted before the first disbursement.

What exactly does it say? Otherwise, talk to the bank. That cannot be a disbursement condition for a new build.

My second question concerns the payout requirements for the loan. The offer states that before the first payout, all invoices for the entire construction costs must already have been submitted. That doesn't make sense either, because construction is done in phases and paid out in installments rather than all at once. Besides, the construction companies and trades certainly won't wait half a year or more to get paid until the house is completed. What is your opinion on this? Are these just standard formulations that don't need to be taken seriously? But what if push comes to shove?

What exactly does it say there, and how do you build? For us (although a renovation with an architect), a cost calculation according to DIN276 was required and we had to demonstrate that we could buffer the corresponding risks.

Do you perhaps work with individual contracts and manage the construction yourself?

If you build with a developer, you will also receive an invoice for the down payments that you can submit to the bank.

"The borrower is obligated to fulfill the disbursement requirements and accept the loan within six months after the financing commitment (therefore after the creation of the contract offer). Failure to meet these obligations entitles the lender to withdraw from the loan agreement."

So the disbursement requirements should be listed separately.
And then you need to clarify from when a loan is considered accepted. I do not read that it must be fully drawn.