How to use equity

That means one should create a buffer and instead of the bank requiring 30% equity, only mention 20% equity.

It is not about %. If you only have 20,000, you do not state any equity at all, since you will spend this amount on the kitchen and various other things. With 100,000 liquid assets, I would state 70,000 as equity. The stated equity + loan amount is your available means for building the house (official calculation for the construction of the home).

It's not about %. If you only have 20,000, you don't declare any equity capital at all, since you will spend this amount on the kitchen and miscellaneous. With 100,000 in liquid funds, I would declare 70,000 as equity capital.
The declared equity capital + loan amount is your available resource for building the house (official calculation for the construction of the owner-occupied home)

When declaring equity capital, I would definitely take the interest rate change limits into account. Let's say the bank differentiates between 100%, 80%, and 60% financing. With a total financing of 100k and 35k equity capital, you would at least declare 20k to the bank to get the more favorable interest rate.

But that wasn’t the OP's question. How to use up equity capital, the bank will probably have its guidelines (usually use it up before using the bank loan).