Can you use your 401(k) to buy a house?

Buying a home is one of the biggest investments you can make—which is why figuring out how to fund the down payment can feel overwhelming. If you’ve been diligently contributing to a 401(k), it’s natural to wonder: Can I use my 401(k) to buy a house? The short answer is yes—but with some major caveats. Let’s dive in. 

Using a 401 (k) loan for a home purchase

One way you can tap into your nest egg to fund homeownership is through a 401(k) loan. This type of loan allows you to borrow up to $50K or 50% of your vested account balance (whichever is less) penalty-free. 

You then repay the loan (plus interest) back into your own 401(k) over a set term, which is typically five years. However, some plans allow a longer repayment period—up to 15 years—if the loan is used to purchase a primary residence.

Using a 401 (k) withdrawal to purchase a home

Another way to take money out of your 401(k) for homebuying is through a hardship withdrawal. Unlike a loan, a withdrawal is not repaid—you’re permanently removing those funds from your retirement savings. So, while it can provide some financial flexibility while you navigate the beginning of homeownership, it's much more likely to lead to a retirement shortfall.

Unlike a 401(k) loan, which is capped at $50K, a hardship withdrawal will allow you to take what you need to cover all of your homebuying expenses.

It's important to note that unless you're 59½ or older, you'll pay income taxes and a 10% early withdrawal penalty.

Pros and cons of using your 401(k) to buy a home

Pros

• Access to substantial funds without needing loan approval from a bank
• Potential to become a homeowner sooner if you lack other liquid assets
• Loan repayments go back to your own retirement account

Cons

• You’re capped at $50,000 for loans—and age or plan restrictions may limit eligibility
• Withdrawals come with significant tax consequences and penalties
• Pulling from retirement savings increases your risk of a shortfall in retirement
• You lose the power of compound growth on the borrowed or withdrawn funds

Should you use your 401(k) to buy a house?

Let’s be honest: just because you can do something doesn’t mean you should. Using your 401(k) to buy a home can be risky. That money is meant for retirement, and withdrawing or borrowing from it can seriously undermine your long-term financial security.

Here are a few things to consider:

• Do you have other sources of funds? If you have a healthy emergency fund, brokerage account, or access to down payment assistance, you may not need to tap your 401(k).
• Can you comfortably repay a loan? A 401(k) loan is less damaging than a withdrawal—but only if you can repay it without strain.
• Will this delay or derail your retirement goals? Don’t sacrifice your future to buy a home now. There are other ways to work toward homeownership without jeopardizing retirement.

Alternatives to consider

IRAs

If you have a Traditional or Roth IRA, you may be able to withdraw up to $10,000 penalty-free as a first-time homebuyer. Using a Traditional Roth, you'll owe income taxes on the amount withdrawn, but avoid the 10% early withdrawal penalty. With a Roth IRA, if your account is at least five years old, you can withdraw up to $10,000 in earnings tax-free and penalty-free for a first home. These options are generally more favorable than using a 401(k), especially for younger savers.

FHA loans

Backed by the Federal Housing Administration, FHA loans empower first-time borrowers with bad or limited savings to finance a home. They require as little as 3.5% down and allow the use of gift funds—making these types of loans an ideal option for financing a first-time purchase. 

Rates are competitive, and some lenders may require mortgage insurance. Qualifications vary, so be sure to explore FHA-approved lenders. 

VA loans

VA loans help veterans and active-duty service members reach homeownership through a zero-down-payment and no mortgage insurance required home loan. These loans are backed by the U.S. Department of Veterans Affairs and provide competitive rates and terms. 

To qualify, you typically need to have completed a minimum period of active duty and received an honorable discharge or equivalent.

USDA loans

USDA loans are designed to make homeownership more accessible by offering prospective buyers in eligible towns and rural areas a zero-down-payment mortgage. Interest rates are generally lower than traditional home loans, and borrowers aren't on the hook for private mortgage insurance (PMI).

To qualify, borrowers can't exceed a certain income threshold and must purchase a property that fits the criteria outlined by the agency.

Frequently asked questions

Can I use my 401 (k) to buy a house without penalty?

Yes—with a 401(k) loan, you can secure enough for a down payment on a house without penalty. A 401(k) loan will allow you to leverage 50% of the vested account balance or $50,000—whichever is less. 

Can you use your 401 (k) for a down payment on a house?

Yes. You can use a 401(k) loan or hardship withdrawal to fund a down payment. But it’s important to weigh the impact on your retirement savings and understand any tax implications.

Can I use my 401 (k) to pay off my house?

Technically, you can use your 401(k) to pay off your mortgage—but just because you can, doesn't mean you should. Loans are usually capped at $50,000 and may be unavailable if you’re near retirement. 401(k) withdrawals come with taxes, penalties, and reduce your long-term savings. 

That said, if you’re nearing retirement with a nearly paid-off home and sufficient remaining savings, it might make sense if the long-term return on peace of mind or interest savings outweighs the cost. Proceed carefully and consider speaking with a financial advisor.

The bottom line

Using your 401(k) to buy a home is possible—but shouldn't be your first resort. Before tapping into your nest egg, explore every other avenue—IRAs, low down payment loans, gift funds, or even waiting a bit longer while saving up.

While a home is a wonderful investment—so is a financially secure retirement. It's usually not worth the risk of jeopardizing future needs for current wants.