Can I Use My 401(k) to Buy a House? Loans, Withdrawals and the Rules Most Buyers Miss
In this article
Yes, you can use a 401(k) to buy a house, but how you take the money out changes what it costs you. A 401(k) loan lets you borrow from yourself and pay it back, while a hardship withdrawal is taxed and cannot be put back. The $10,000 penalty-free "first home" exception many people have heard about applies to IRAs, not to 401(k) plans, according to the IRS.
Can I use my 401(k) for a down payment?
In most cases, yes. Fannie Mae's Selling Guide (section B3-4.3-03) says vested funds in 401(k) accounts are an acceptable source of money for the down payment, closing costs and reserves. Your lender will check that the account is yours, that the money is vested, and that the plan allows withdrawals no matter where you work.
The bigger question is not "can I?" but "which way?" There are two main doors out of a 401(k) before retirement:
A 401(k) loan. You borrow from your own account and repay it, with interest.
A hardship withdrawal. You take the money out for good. It is taxed, and it may also carry an extra 10% tax.
Your plan decides which doors are open. The IRS says a plan "may, but is not required to" offer loans, and the same is true for hardship withdrawals. Call your plan administrator first and ask what your plan allows.
How does a 401(k) loan work when you buy a home?
A 401(k) loan is money you borrow from your own retirement savings. Here are the IRS rules, from its Retirement Plans FAQs Regarding Loans page (last updated Feb. 26, 2026):
How much: the lesser of $50,000, or the greater of $10,000 or 50% of your vested balance. The IRS example: with a $40,000 vested balance, the most you could borrow is $20,000.
How long to repay: generally within 5 years. A loan used to buy your main home may be paid back over a longer period.
How you repay: in substantially equal payments of principal and interest, made at least every three months.
What if you do not repay? The IRS says a loan that is not paid back under its terms is generally treated as a taxable distribution of the whole unpaid balance. That can include the early distribution tax.
If you leave your job and the plan reduces your account by the unpaid loan (a "plan loan offset"), the IRS says you may be able to roll that amount over by your tax return due date, including extensions.
Does a 401(k) loan count against my mortgage approval?
This is the part many buyers do not expect. Fannie Mae's Selling Guide (section B3-6-05, dated Aug. 5, 2026) says a loan secured by a 401(k) is a "contingent liability." The lender is not required to count its payment in your debt-to-income ratio, as long as the lender gets a copy of the loan paperwork that shows your 401(k) as the collateral.
There is a catch. If you plan to use that same 401(k) to show reserves (money left over after closing), the lender must subtract the loan amount and fees from the account value first.
FHA, VA and USDA loans and individual lenders can have their own rules, so ask your loan officer before you borrow. Our guide to the debt-to-income ratio for a mortgage explains how lenders add up your monthly debts.
What is a hardship withdrawal, and what does it cost?
A hardship withdrawal takes money out of your 401(k) for good. The IRS Hardship Distributions page (last updated Feb. 26, 2026) lists "costs directly related to the purchase of an employee's principal residence (excluding mortgage payments)" as one of the safe-harbor reasons a plan may allow.
Three things to know:
It is taxed. The IRS says hardship distributions are subject to income tax, unless they come from Roth contributions.
There may be an extra 10% tax. If you are under age 59½, the IRS says the 10% additional tax on early distributions may also apply.
You cannot put it back. The IRS says you can't repay a hardship distribution to the plan or roll it over.
Here is a simple, labeled example. If a buyer under 59½ takes a $20,000 hardship withdrawal and no exception applies, the 10% additional tax alone is $2,000. Regular income tax comes on top, at that buyer's own tax rate. That is money that never reaches the down payment.
Is there a penalty-free way to use retirement money for a first home?
Yes, but it lives in an IRA, not a 401(k). The IRS table of exceptions to the 10% additional tax (last updated Dec. 11, 2025) marks the $10,000 first-time homebuyer exception "yes" for IRAs and "no" for qualified plans like a 401(k).
IRS Publication 590-B (2025) sets the IRA rules:
Up to $10,000, once in your lifetime. If both spouses are first-time buyers, each can take up to $10,000.
"First-time" has a special meaning. You count as a first-time homebuyer if you had no present interest in a main home during the 2 years before the date you buy. If you are married, your spouse must meet that test too.
The 120-day clock. The money must be used for qualified costs of buying or building the home within 120 days after you receive it.
It can help family. The home can be for you, your spouse, your children or grandchildren, or your parents or other ancestors.
The exception only removes the extra 10% tax. Income tax may still apply to a traditional IRA withdrawal. A tax professional can tell you what you would owe.
401(k) loan vs. hardship withdrawal vs. IRA first-home withdrawal
Question | 401(k) loan | 401(k) hardship withdrawal | IRA first-home withdrawal |
|---|---|---|---|
Must your plan offer it? | No, plan's choice | No, plan's choice | Allowed by IRS rule for IRAs |
How much? | Lesser of $50,000, or the greater of $10,000 or 50% of vested balance | Only what the need requires | Up to $10,000 lifetime without the 10% extra tax |
Income tax? | No, if repaid on time | Yes (unless Roth contributions) | May apply |
Extra 10% tax if under 59½? | Only if it turns into a deemed distribution | May apply | Waived for qualifying first-time buyers |
Can you pay it back? | Yes, that is the point | No | Only in limited cases |
Counted in mortgage DTI? (Fannie Mae) | Not required, with loan paperwork | No new debt | No new debt |
Sources: IRS loan FAQs and hardship pages (Feb. 26, 2026), IRS exceptions table (Dec. 11, 2025), IRS Publication 590-B (2025), Fannie Mae Selling Guide B3-6-05 (Aug. 5, 2026).
What this means for new-construction buyers
Buying a home that is still being built adds timing questions that a resale purchase does not.
Your deposit may come due early. If your builder asks for a deposit when you sign the contract, you may need cash months before closing. Ask your plan how long a 401(k) loan or withdrawal takes to process before you sign. Our guide to the earnest money deposit on new construction explains how builder deposits work.
The IRA 120-day clock and a long build do not always fit. IRS Publication 590-B says the "date of acquisition" is the day you sign a binding contract to buy the home, or the day building begins. The money must still be used within 120 days after you receive it. If you pull IRA money too early for a to-be-built home, the clock can run out. The IRS also says that if the purchase is canceled or delayed, you can generally put the money back into an IRA within 120 days and avoid the taxes. Plan the timing with a tax professional.
Think about your job before you borrow. If you leave your employer during a long build with a 401(k) loan still unpaid, the plan loan offset rules above can come into play.
Look at other money first. Gift funds from family, down payment help programs and builder incentives can sometimes cover part of the cash you need. See our guides on how much a down payment on a house is and the mortgage gift letter.
Common Questions
Can I use my 401(k) to buy a house without a penalty?
A 401(k) loan does not carry the 10% extra tax as long as you repay it on schedule. A hardship withdrawal may carry the 10% extra tax if you are under 59½. The IRS \$10,000 first-time homebuyer exception applies to IRAs, not 401(k) plans.
How much can I borrow from my 401(k) to buy a house?
The IRS limit is the lesser of \$50,000, or the greater of \$10,000 or 50% of your vested balance. Your plan may set its own lower limits. Ask your plan administrator for your exact number.
How long do I have to repay a 401(k) loan used for a home?
The IRS says plan loans generally must be repaid within 5 years. A loan used to buy your main home may be repaid over a longer period if your plan allows it. Payments must be made at least every three months.
Will a 401(k) loan hurt my mortgage approval?
Fannie Mae does not require lenders to count a 401(k) loan payment in your debt-to-income ratio if the lender gets the loan paperwork showing your 401(k) as collateral. Other loan programs and lenders can have different rules. Ask your loan officer before you borrow.
Does the IRA first-time homebuyer exception work on a new-construction home?
IRS Publication 590-B covers costs of buying, building or rebuilding a first home. The money must be used within 120 days after you receive it, and the date of acquisition is the day you sign a binding contract or the day building begins. Time the withdrawal carefully with a tax professional.
Can I pay back a hardship withdrawal?
No. The IRS says hardship distributions can't be repaid to the plan or rolled over into another plan or an IRA. That money leaves your retirement savings for good.
Ready to take the next step?
Call 561-704-0091 to talk with a National House Search specialist, or Schedule a visit.
Related reading: How much is a down payment on a house? · Is there a first-time home buyer tax credit? · Debt-to-income ratio for a mortgage
Sources: IRS Retirement Plans FAQs Regarding Loans · IRS Hardship Distributions · IRS Exceptions to Tax on Early Distributions · IRS Publication 590-B · Fannie Mae B3-4.3-03 · Fannie Mae B3-6-05
This is general information, not financial, tax or legal advice. Figures checked October 26, 2026.