Maine ADU Financing: HELOC vs. Construction Loan vs. DSCR

How to actually pay for an ADU in Maine or New Hampshire

An ADU is one of the better-financed home improvements you can make, because the unit usually generates income that helps carry the loan. But the right financing path depends entirely on whether you are an equity-rich homeowner or an investor buying the ADU as a rental. Here are the three most common routes we see fund builds in southern Maine and the NH Lakes Region, from Sanford to Wolfeboro.

This is general information to help you compare options — it is not financial or lending advice. Talk to a licensed loan officer about your specific situation.

1. HELOC (home equity line of credit)

How it works: You borrow against the equity in your existing home through a revolving line, draw funds as the build progresses, and pay interest only on what you have drawn during the draw period.

• Rough 2026 terms: variable, often prime + 0 to prime + 1.5, so roughly the high-single to low-double digits depending on credit and the lender; typical 10-year draw, 20-year repayment.
• Pros: fastest to set up, low or no closing cost, flexible draws, you only pay for what you use.
• Cons: variable rate, and it puts a lien on your primary home. Best when you have substantial equity and want speed.
• Best fit: the equity-rich homeowner adding an ADU for family or long-term rental.

2. Construction loan (construction-to-permanent)

How it works: A lender funds the build in stages tied to a draw schedule, then converts the balance to a standard mortgage when the ADU is complete. Draws are released after inspections at milestones — for us, that maps cleanly onto our 8-week build schedule (foundation, framing/dry-in, rough-in, completion).

• Rough 2026 terms: interest-only during construction at a rate a point or two above conventional mortgage rates, then it rolls into a fixed 15- or 30-year mortgage.
• Pros: one closing for build-plus-permanent financing, fixed rate on the back end, designed for ground-up work.
• Cons: more paperwork and appraisal steps, lender wants a fixed-price contract and draw schedule (which our turn-key pricing provides cleanly).
• Best fit: owners without enough existing equity for a HELOC, or anyone who wants a fixed long-term rate on the whole project.

3. DSCR loan (debt-service coverage ratio)

How it works: An investor-focused loan underwritten on the rental income the property produces, not your personal W-2 income. The lender checks that the unit's rent covers the debt payment by a required ratio (often 1.0–1.25x).

• Rough 2026 terms: rates typically a bit above conventional investment mortgages; down payment usually 20–25%.
• Pros: qualifies on the deal's cash flow, not your tax returns — powerful for self-employed owners or investors already carrying mortgages.
• Cons: higher rate and down payment, and you need realistic rent numbers (see our ADU rental income breakdown) to make the ratio work.
• Best fit: the investor building an ADU purely as an income property.

Which one fits you

• Lots of home equity, want speed → HELOC.
• Limited equity, want a fixed long-term rate → construction-to-permanent loan.
• Buying the ADU as an investment, want to qualify on rent → DSCR loan.

Many owners also simply pay cash or use a cash-out refinance when rates favor it. There is no single right answer — it is about matching the tool to your equity, income, and goals.

Draw schedules and why our pricing helps

Every one of these lenders wants a clear scope, a fixed price, and a draw schedule tied to inspectable milestones. Because we build to seven standard models at transparent turn-key pricing starting around $135,000 for The Bean, we hand your lender exactly what they need: a firm number and a predictable milestone schedule. That makes the loan easier to approve and the draws easier to release.

Get your number first

Financing conversations go faster when you have a real build cost in hand. Run our instant pricing calculator to get one, then book a free build consult and we can point you to local ME/NH lenders who do these loans. Again — general information here, not financial advice.