There is no single right answer — the best financing path for a New Hampshire ADU depends on how much equity you have, how good your current mortgage rate is, and whether you need the money up front or in stages as construction progresses. As a rule of thumb: a HELOC or home-equity loan fits homeowners with deep equity and a first-mortgage rate worth protecting, a cash-out refinance fits those whose existing rate isn't worth keeping, and a construction loan fits projects bigger than the equity available.
That's the short version. The rest of this guide walks through how each option actually works, when each one wins, and the mistakes that cost NH homeowners real money. Terms and qualifying rules vary lender to lender, so the final answer always comes from sitting down with a local lender who knows ADUs.
A typical New Hampshire ADU build runs $275,000–$400,000+ depending on size, site conditions, and finish level. Very few households write a check for that, which is why the financing decision matters as much as the floor plan. Throughout this guide we'll use a $300k build as the worked example.
It's also worth naming why the math can pencil even at that price. Families weighing an ADU for an aging parent are comparing it against assisted living, which commonly cited industry surveys put at $70,000–$100,000+ per year. Against that backdrop, financing a one-time build looks very different than it does in isolation.
A home equity line of credit is a revolving credit line secured by your house, usually sitting behind your existing mortgage as a second lien. You get approved for a maximum line, then draw only what you need, when you need it — and you pay interest only on what you've drawn.
That draw-as-you-go structure maps neatly onto how construction actually gets paid for: a deposit, then progress payments as the foundation, framing, and finish work complete. Your first mortgage stays exactly as it is, which is the HELOC's superpower — if you locked a low rate years ago, you keep it.
A HELOC tends to win when:
Watch for: HELOC rates are typically variable, so your carrying cost can move over the life of the project, and many lines have distinct draw and repayment phases with different payment rules. Ask your lender exactly how yours is structured before you sign a construction contract against it.
A home-equity loan is the HELOC's steadier sibling: same collateral, same second-lien position, but delivered as a lump sum with (typically) a fixed rate and a fixed monthly payment. You know your cost on day one.
It wins when you have a firm, fixed-price construction contract and you value predictability over flexibility. The trade-off is the mirror image of the HELOC's: you start paying interest on the full amount immediately, whether the builder has earned it yet or not, and there's no drawing more if the project grows. If your bids are locked, this is often the cleanest tool in the box.
A cash-out refinance replaces your existing mortgage with a new, larger one; the difference comes to you in cash to fund the build. One loan, one payment, and a lump sum big enough for a serious project if the equity is there.
Here's the part people miss: your entire mortgage balance moves to the new rate — not just the new money. That's the whole decision. If you're carrying a low rate from years past, a cash-out refi quietly reprices every dollar you owe to fund a project that's a fraction of the balance. Run that math before anything else.
A cash-out refi tends to win when your current rate is nothing special — you bought or refinanced recently at prevailing rates — or when you were planning to refinance anyway. In that case, consolidating everything into one first-lien loan can be simpler and sometimes cheaper than stacking a second lien on top. Whether the blended cost actually beats a HELOC on your numbers is precisely the "ask your lender" question.
When the project is bigger than your equity. On our $300k example, a homeowner with modest equity simply can't get there with a HELOC or refi — the collateral isn't there yet. A construction loan solves this by lending against what the property will be worth with the ADU on it, not just what it's worth today.
The mechanics are more involved than with the other three:
The paperwork is real, but so is the discipline: a lender vetting your budget and builder is a second set of professional eyes on the biggest purchase most families make after the house itself. And the permitting side is friendlier than it used to be. Since July 1, 2025, RSA 674:72 (amended by House Bill 577) allows one ADU by right — attached or detached — wherever single-family homes are permitted, with no special exception or variance for the ADU itself. A normal building permit and reasonable local standards still apply, but the approval uncertainty that once made lenders nervous is largely gone. Our plain-English guide to the NH ADU law covers what that means in practice.
Sometimes. Some lenders will count projected rental income from the ADU toward your qualification; others won't, or will only count part of it. Never build your plan on the assumption that rent counts — ask the question explicitly, early, and shop for a lender who understands ADUs if the first answer is no.
Pick the loan that fits your equity and your rate, and the $300k question gets a lot smaller.
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