Can we really afford this, and will the bank support it?

Only in your mind.
After all, the 1.6 million is opposed by only 860k in debt. That’s a much better balance than a 400k property with 350k in debt.
Even better would be 5 million in debt and 15 million in properties.
Everything is relative.

Objectively, no courage is required for that. Anyone can "objectively" sleep peacefully. What could happen? Both lose their jobs and have to sell the house? So what? You can live many years without a job with the surplus.
The one with the 400k property and 350k in debt falls directly into a deep basic income hole upon job loss. Even if he previously thought he could sleep well with a small loan.

Well, I see that somewhat differently because ALG1 is capped in case of job loss. For example, we pay a 1.5k installment with the same income. I can comfortably continue to pay that from ALG1 even if I lose my job. With a 3.5k installment, you can either beg the bank for mercy or call the real estate agent right away and commission the sale. The risk is definitely not negligible.

Well, I see that a bit differently, since ALG1 is capped in the event of job loss.

Yes. But with the sale, you still have about 3/4 million left to live on. In the second example, you have to be able to pay the mortgage from ALG and later Bürgergeld (e.g., 350k for 1,500€ per month) or sell it and then you basically have no assets to live off.

With a rate of 3.5k you can either beg the bank for mercy or call the realtor right away and commission the sale. The risk is definitely not small.

First, it’s an extreme example that both lose their jobs and find nothing new (with that income, a certain qualification is already present). Second, it’s a real estate loan, where the bank is relaxed. Third, a sale is not a risk. As written above, you get about 3/4 million cash in your pocket. I’m annoyed to sell the house, but I live more relaxed than in the other example. For example, buy a small apartment, pay cash, and still have 400,000€ for my living expenses over the next 15 years. You’re not used to these numbers, are you?

Well, I see that somewhat differently because ALG1 is capped in case of job loss. For example, we pay a 1.5k installment with the same income. I can easily continue paying that from ALG1 in case of job loss. With an installment of 3.5k, you either have to beg the bank for mercy or immediately call the real estate agent and order the sale. The risk is not insignificant.

That's because one is simply not objective. The house you own is the nest you have shaped and furnished exactly the way you want it. The worst case scenario is then having to sell it. Whether that is financially, meaning objectively, not a problem at first, doesn't matter if you are mourning an immaterial added value in the affordable rental dump.
The longer we live in ownership, the clearer it becomes that the house is replaceable, but not the location and in our case especially the garden. We are already thinking about a change – into a house with a lot more garden space in a similarly good location. If that would only be affordable if we had to sell in an emergency (which we would probably only have to do now in case of double work/service incapacity), that would be a purely subjective Damocles sword against which all the objective arguments in the world won't help. Money is not an end in itself, only the assumption of money as an end in itself makes decisions regarding investments possible. That should be considered.

Buy, for example, a small apartment, pay cash, and still have 400,000€ left for my living expenses for the next 15 years.

And are you the kind of person who feels just as comfortable then as before in the house? I ask because of my previous post, this sentence illustrates that quite well.

And are you the kind of person who then feels just as comfortable as before in the house? I ask because of my previous post, this sentence illustrates that quite well.

If both partners no longer have a job and/or cannot get a new one (illness etc.), the great big house is my last problem to deal with. So yes, a house is a mobile phone, a bicycle, a car. It is a utility item. A shell. My home, where I feel comfortable, takes place within the four walls. Yes, I cannot feel just as comfortable in such a situation, but differently and comparably comfortable. P.S. I am currently living in the fifth property of my own, depending on the life situation. And I have been happy and felt comfortable as an owner in every property for 30 years. And I already know now that I will certainly change again when I retire. P.S. 2 Properties have also been my job for almost 30 years. Maybe (or even certainly) I therefore have a different perspective than the nest builders who imagine spending their entire life in the first property.

So yes, a house is a cell phone, a bicycle, a car. It is a utility item. A shell. My home, where I feel comfortable, takes place within the four walls.

That applies to the house for me, certainly not to the garden. Being able to shape a small piece of land according to your own ideas and also having an ongoing project with it is essential. Many homeowners will have such things, be it the aquarium cellar or something similar. It is not an objectively playable topic for most.

A little piece of land of your own

Here I see the emphasis on "A" and not fixed on "Exactly that".

It is not an objectively playable topic for most people.

That is exactly the problem. When you take a closer look at it, you realize that almost every property and every plot of land has its own charm. Or even just the apartment with the large roof terrace.
But yes, for many this is a highly emotional topic.

When I was still doing my training (long ago), the premise was "Boy, choose a good employer. Because you will stay there your whole life." Today, as a young person, you are almost branded with a stigma if you don’t even change your employer once. Topics change like that. Moving for jobs is now so common and with that also a change of property (in fact, there are studies and statistics showing that attitudes towards real estate, buying/selling, moving have changed extremely and this has become a certain normality. Currently, about 10-13% of all Germans move each year – mobility before attachment to the home).

But now let's get back to the topic.