You can borrow from many 401(k) plans (usually up to $50,000 or half your vested balance) and repay yourself through payroll, or withdraw from an IRA, where first-time buyers can take up to $10,000 without the 10% early withdrawal penalty. Both shrink your retirement savings and can cost you growth, so they’re usually best as a last resort or to fill a small gap.
Option 1: A 401(k) loan
If your employer’s plan allows loans, you can generally borrow the lesser of $50,000 or 50% of your vested balance. You repay yourself with interest through payroll deductions. Plans often allow longer repayment for a home purchase than the usual five years.
- Pros: no taxes or penalty if you repay on schedule, no credit check, and the interest goes back into your own account.
- Cons: the borrowed money misses out on market growth; the payment counts in many lenders’ debt calculations; and if you leave or lose your job, the remaining balance generally must be repaid by your tax filing deadline or it’s treated as a withdrawal.
Option 2: A 401(k) withdrawal
Some plans allow hardship withdrawals for buying a primary residence. Withdrawals are taxed as income and usually carry a 10% penalty if you’re under 59½. That can cost a third or more of what you take out, so it’s rarely a good deal.
Option 3: An IRA
- Traditional IRA: first-time buyers (no home owned in the past two years, for this rule) can withdraw up to $10,000 over their lifetime without the 10% penalty, though it’s still taxed as income.
- Roth IRA: your contributions can come out at any time tax- and penalty-free. Up to $10,000 of earnings can also come out tax-free for a first home if the account is at least five years old.
Spouses can each use their own $10,000 exception.
What it really costs
Money taken out of retirement can’t grow for decades. $20,000 left invested for 30 years at a 7% average return would grow to roughly $150,000. Compare that with the alternatives: a smaller down payment with mortgage insurance, down payment assistance, or waiting a few months longer.
See what a smaller down payment would cost each month with the PMI calculator, check for down payment assistance, and see how long saving the gap would take with the down payment timeline.
How lenders see it
Lenders need to see where your down payment comes from. Keep the plan’s loan or withdrawal paperwork and the statement showing the deposit. A 401(k) loan payment may be included in your debt-to-income ratio; check the effect with the debt-to-income calculator. Retirement balances you leave alone can also count as reserves, which helps your approval.
Get advice first
Tax rules have details and exceptions. Talk to your plan administrator and a tax professional before taking money out of a retirement account.
Common questions
How much can I borrow from my 401(k) for a house?
Usually the lesser of $50,000 or half your vested balance, if your plan allows loans.
Can I withdraw from my IRA penalty-free to buy a house?
First-time buyers can withdraw up to $10,000 over their lifetime without the 10% penalty; traditional IRA withdrawals are still taxed.
Does a 401(k) loan affect my mortgage approval?
The repayment may be counted in your debt-to-income ratio, depending on the program. Your lender will need the loan paperwork.
Updated October 2026. Educational content. OfferBacked is not currently a lender and doesn’t issue pre-approvals or loans.