Can You Buy a House with Your 401(k)?

There are several ways you can use your 401(k) toward a down payment. First, there are 401(k) loans, which is the most desirable option because you avoid penalties. However, you do have to pay back the money over what is usually a five year period. Often, you can borrow up to $50,000 or half of your savings. The other option for using your 401(k) to buy a house is a withdrawal. If you need more than $50,000 or if your plan does not allow loans, you will need to take the money out of the account permanently and pay the 10% penalty.

The Drawbacks of Buying a House with Your 401(k)

Using your 401(k) for a down payment on a home is not a one size fits all strategy. For some people, it might make sense to take money out of your 401(k) to go toward your down payment. For others, they might incur a large penalty or need that money soon, so they should try and avoid using their 401(k) money. The largest drawback is the penalties you might incur from using your 401(k), as well as not having a retirement account, or having to start your retirement account over. If you have the time to recoup your funds or believe that you will make enough of a profit on the house you will buy to make up for this loss, it might be beneficial to use your retirement account toward your down payment.