When to use equity?

In construction financing, the question currently arises as to at what point the existing equity can/must be used.

Example:
-existing land paid for entirely with equity
-construction costs excluding land including outdoor facilities and fittings €1,000,000
-equity €800,000
-financing requirement €200,000
-100% repayment over 10 years
-interest fixation 10 years
-start of construction April 2020
-planned construction time 1 year
-interest-free provision depending on the bank between 2 and 6 months, thereafter between 1.5 and 3% per year
-special repayment 5% of the loan amount (€200,000) per year

Do the banks insist that one first uses up the equity and then draws down the loan ? Then the interest-free duration of the provision would of course be very important, since in the example given it is assumed that the loan will only be needed in about 10-12 months. This in turn raises the question of whether it even makes sense to conclude a loan agreement now, or whether one should first use up the equity and then see what financing requirements remain, since the construction costs are already calculated with a high degree of certainty and it could theoretically even be the case that no loan will be needed at the end if everything goes optimally.

If this is the case, do the banks then require proof of the total equity used before the loan is disbursed, or can I draw down the loan at any given time and only prove the loan amount by invoices? Logically, it would actually make sense if I could draw down the loan when I can demonstrably show that the amount corresponds to equity (including land) already used, because then there is a corresponding countervalue. Then the bank could at most complain that a started construction cannot be valued as a one hundred percent countervalue.

Thank you very much for your answers.

Doesn't matter at all for you. Under the framework conditions, you dictate the rules of the game to the bank.

In general, it's never wrong to have some cash in reserve.

Take a look at the KFW 153 loan with the new conditions. As a rule, I would draw down the loan as late as possible, as long as there is no commitment fee yet and as long as there is still a comfortable buffer for unforeseen expenses from your equity.

Do the banks insist that you first use up the equity and then draw the loan ?

Usually yes, but there are exceptions. You might be among them. Every bank is different in this regard, just ask. Congratulations on having so much equity. I could build 2 houses with that.

Then again, this raises the question of whether it even makes sense to conclude a loan agreement now, or whether one should first use up the equity capital to then see what financing needs actually remain, since the construction costs are already calculated with a great deal of certainty and it could theoretically even be the case that in the end no loan is needed at all if everything goes optimally.

Given your starting position, I would take the risk; in half a year, interest rates will probably not have exploded yet.

we were able to use our equity at any time and had an interest-free period (except for the KFW part of the financing) of one year. All this with significantly worse initial conditions and at the Sparkasse