Pay off land privately?

Just as an example:

Option A: We get the property transferred and agree on the payment on day X. We go to the bank and say: "We need 360,000 euros for the construction and also 60,000 for the property." That makes a total of 420,000. The property then logically cannot be counted as equity capital because the bank has to finance it - right?

Correct.

That would be okay and doable, but in my mind there is still Option B:
We get the property transferred and agree on a monthly payment to the grandparents. We go to the bank and say: "We need 360,000 for the construction and we own a property worth 60,000 euros." That makes a sum of 360,000 with equity of 60,000. When checking liquidity, of course the private debt must be taken into account and declared. Overall, the installment for the construction and the installment for the property would still be significantly lower due to the equity than in Option A.

Presumably, this is a fundamental thinking error, but I would like to understand it!

No matter what arrangement is made, the equity capital is always the same amount: money in the account + value of the property - remaining debt on the property. Here it makes no difference whether it is a bank loan or a private one, or whether the payment is due in x years.

No matter how you turn it, you have to pay for the property + house. That is undisputed. In total 420,000.

In variant A, the bank gives you 420,000€ with 420,000€ collateral. 100% financing --> expensive.
In variant B, the bank gives you 360,000€, but has 420,000€ collateral (house + property). --> cheaper interest rate.

In total, you always pay 420,000€ plus interest.

In variant B, the family is at a disadvantage if you become insolvent and the house sells for less than 420,000€: then the bank gets everything first, and only what remains goes to the family. The risk is shifted from the bank to the relatives; that is why the interest costs decrease.

Thank you, now it clicked