small new building + expansion of existing house - assessment

Some banks will not give you a loan because they cannot secure the loan as a first priority in the land register due to the right of residence. Grandma will no longer be able to approve the deletion due to dementia, and if there is no notarized power of attorney, a guardian to be appointed for this will only obtain permission for the deletion depending on the contractual arrangement of the right of residence against compensation.

Is this actually checked?

What can I say? Normally, not really. But one annoying neighbor is enough.
I know, it doesn't help you.

Grandma will no longer be able to approve the deletion due to dementia, and if there is no publicly notarized power of attorney, a guardian to be appointed for this purpose will only get approval for the deletion depending on the contract terms of the right of residence against compensation.

My mother has held the power of attorney and so on for several years; whether this will be sufficient in the event remains to be seen.

What happens to the bungalow if the mother no longer wants or is able to live there?

So my mother knows the plan - and agrees with it - she categorically rejects a new partner and she doesn't have much time left until retirement. If she can no longer manage, it usually leads to a nursing home or similar - at this point, the corresponding powers of attorney unfortunately already exist due to bad experience.

Overall, it sounds to me as if you see our plan as too complicated with too many pitfalls?

No one really checks the implementation of the Energy Saving Ordinance. I've honestly never even heard of a case. Not even at the regulars' table, and there, everything always seems to have happened already. Aside from that: year 93 for the heating system. That's a low-temperature boiler equipped with a controller. So it's exempt. The heaters will also have thermostats. Insulating pipes is a matter of 2 hours and 50€. It saves real money in the long run and is a good investment. The same goes for the top floor ceiling, if not done yet. 1500€, a weekend for two with a crate of beer, and you're already saving. So these are all certainly good options. However, I would wait until the job situation is clarified. Is your wife's contract being extended despite parental leave? You'd better wait as well. That means by the end of the year it will be clear what the salary will look like in the long term. If it's similar, then it won't be a problem. Until then, you can still build up equity.

my mother has had the power of attorney for several years; whether that is sufficient in the event remains to be seen

My mother owns 75% of the affected house, so there could be a conflict with §181 of the Building Code (prohibition of self-contracting) (opinion of a non-lawyer).