So quickly equity suddenly becomes externally financed equity. It is and remains a loan, no matter if easyCredit, home savings contract, Targobank or wherever it comes from. Whoever takes the financing into obligation. As a home financier, I don't care, as long as the bonuses allow it. Unfortunately, this only ensures that the original poster might only have €800 left for the "real" mortgage financing, because the remaining €200 goes into a short-term other financing. And with €800, no longer €200k can be financed and thus the project fails.
The original poster's question was: What can we afford?
Answer: €1,500 installment for a smaller house with the desired term (thus about €300k loan)
Premises: The original poster can manage with the remaining income. Only he can answer that honestly. I find it tight with two kids, but land makes it feasible.
Sorry, but this "externally financed equity" is more likely financed via Hanseatic Bank, Bank of Essen (Consors Finanz) or DSL Bank, precisely so that due to the term it does not unduly strain the capital service.
Possibly also via BKM or Alte Leipziger with their blank pre-financed home savings contracts.
It is also like this – I do not mean it badly, really not – if you only play the scale upwards, not up and down, you can only evaluate concepts to a limited extent, or give no well-founded evaluation with dangerous half-knowledge.