Using Your 401(k) to Buy a Home

Comparing loans, withdrawals, and smarter alternatives for your down payment

Many first-time homebuyers consider tapping their 401(k) for a down payment. While possible through loans or hardship withdrawals, the true cost - including taxes, penalties, and lost growth - often exceeds what people expect.

401(k) Loan vs. Withdrawal for Home Purchase

401(k) Loan: Borrow up to 50% (max $50,000), repay with interest, no tax or penalty if repaid
Hardship Withdrawal: Permanent distribution, income tax + 10% penalty if under 59 1/2
IRA First-Time Homebuyer: The $10,000 penalty-free exception applies to IRAs only, NOT 401(k) plans

Smarter Alternatives

FHA loans require just 3.5% down, VA loans need 0% down, and most states offer down payment assistance programs. Compare these before tapping retirement savings.