Can I Use My 401(K) To Buy a House?
Borrowing from your retirement fund generally comes with risks
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With high housing prices, it’s getting harder and harder to save enough to buy a home. To put enough cash together for a down payment, you might be wondering if you can use money from your 401(k) account. While you can borrow from your 401(k) account to buy a home, there are some considerations to take before pursuing this option.
You can take a 401(k) loan for a down payment on a home, but borrowing limits and repayment terms apply.
Jump to insightIf you can’t repay your 401(k) loan, there may be penalties and taxes assessed, and if you lose your job, your 401(k) loan balance may be due immediately.
Jump to insightBefore considering a 401(k) loan for buying a house, look into down payment assistance programs for first-time homebuyers.
Jump to insightBorrowing rules for 401(k) accounts
You can borrow money against your 401(k) account by taking out a 401(k) loan. These loans are a type of portfolio loan that let you borrow a portion of the balance of your 401(k) account.
There are specific borrowing rules you must adhere to for a 401(k) loan, according to the Internal Revenue Service (IRS).
Borrowing limits
You can borrow up to $50,000 or 50% of your vested balance, whichever is less. If 50% of your vested balance is less than $10,000, the maximum limit is $10,000. Also, you can take out multiple 401(k) loans, but the total balance may not exceed the plan maximum.
Repayment terms
Repayment terms are set by your 401(k) provider, but the maximum repayment term is five years, with a minimum of quarterly payments required. If you purchase a principal residence, you’ll be exempt from the repayment term maximum. This allows 401(k) plan providers to extend the repayment term beyond five years.
Note that not all 401(k) providers allow plan participants to take out a loan. Also, you must pay a 401(k) loan in full immediately if you leave your job or are terminated. However, you may be able to roll the remaining loan balance over to a qualified individual retirement account (IRA) plan by the tax filing deadline for the year you leave.
Hardship withdrawals
The IRS allows hardship withdrawals from 401(k) accounts under certain circumstances. For example, hardship withdrawals are typically allowed for medical, funeral or qualifying educational expenses.
A 401(k) plan administrator will specify under which circumstances hardship withdrawals are allowed, but they typically must include an immediate and heavy financial need, according to the IRS. You may still owe income taxes and potential early withdrawal penalties, depending on the type of account and withdrawals made. Also, you may not be able to contribute to your 401(k) for six months after taking a hardship distribution.
Risks of borrowing from your 401(k)
Borrowing from your 401(k) comes with a lot of risks, including potential IRS penalties and taxes. Here are a few risks to be aware of before taking out a 401(k) loan to purchase a home.
Leaving your job
According to the IRS, if you leave your job or are terminated, you’re responsible for repaying the 401(k) loan in full immediately or rolling the loan’s outstanding balance into an IRA. If you roll your 401(k) account into an IRA or another eligible retirement plan to avoid the income tax implications and IRS penalty, make sure you do so by the tax filing deadline.
If you can’t repay the loan, it will be counted as a deemed distribution. If you’re under 59 1/2 years old, the funds used are subject to a 10% IRS penalty and income tax.
401(k) loan default
If you default on your 401(k) loan repayment, you may be on the hook for IRS penalties and taxes. If you miss a payment, your loan is in default. Eventually, the defaulted amount will be counted as a deemed distribution, and if you’re under age 59 1/2 years old, you’re subject to a 10% IRS penalty plus income taxes.
Your plan administrator sets the terms and conditions on how loan defaults are handled. Some administrators specify that payments that aren’t made by the end of the following quarter are to be counted as a deemed distribution. It’s important to check with your plan administrator to understand how it treats missed payments and loan defaults.
Impact on retirement
Your 401(k) plan administrator may deem unpaid balances on your loan as a distribution if you miss payments or leave your job. This can have a massive impact on your retirement savings as you can’t make up for those lost contributions.
Also, some workplace retirement plans don’t allow contributions until a 401(k) loan is paid off, further delaying your retirement savings. This also impacts your taxes, as traditional 401(k) contributions lower your taxable income.
How to borrow from your 401(k)
If you choose to borrow from your 401(k) to purchase a home, here are the steps to take:
1. Contact your 401(k) plan administrator
All 401(k) loans will be handled through your plan administrator if it offers 401(k) loans. You’ll need to contact the plan administrator to understand what your options are.
2. Review the loan costs and terms
Review terms and conditions, including loan fees, interest rates and term lengths, before applying for a loan. If you’re borrowing to purchase a home, make sure to specify this if you want to extend your loan repayment term.
3. Complete the loan application
You will need to complete a loan application, which may include providing additional personal information or documentation. These loans are considered asset loans, not consumer debt, so the process should be fairly quick.
4. Receive your funds
Once your application is received and approved, your 401(k) plan administrator should be able to directly deposit your funds to your bank account or write you a check for the amount borrowed.
5. Set up a payment plan
Make sure to begin regular payments as specified by your loan agreement. Consider setting up autopay if it’s available to avoid missing any loan payments.
Alternatives to borrowing from your 401(k)
While borrowing from your 401(k) might seem like a quick and easy route to accessing funds for a home down payment, it’s best to consider alternative options first.
Down payment assistance programs
There are many down payment assistance programs available from local, state and nonprofit agencies for first-time homebuyers. Each program has different terms and requirements, but they typically offer down payment or closing costs assistance in the form of grants or loans.
» MORE: First-Time Homebuyer Loans and Programs
Home equity line of credit
If you currently own a home but are looking to purchase your next home, you may be able to use your current home equity to come up with the down payment funds. Just note that taking out a home equity line of credit (HELOC) will impact your debt-to-income (DTI) ratio for qualifying for a mortgage.
Sell assets or items
If you need quick access to cash for a down payment, it may be a good idea to sell some of your assets or items around the house. For example, maybe you have furniture, a car or appliances that you don’t use.
Gifted funds
If you have a friend or family member who would be willing to gift you funds for a down payment, this can help you purchase a home. Most lenders will require a written letter stating the funds are a gift with no obligation to pay them back.
FAQ
Is a 401(k) the same as an IRA?
A 401(k) isn’t the same as an IRA, though they’re both retirement accounts. A 401(k) is a workplace retirement plan that’s tied to your job, while an IRA is a stand-alone retirement account that you manage yourself. While 401(k) accounts choose a plan administrator for you and give you limited investment options, you can open an IRA with a brokerage of your choosing and have access to thousands of investment choices.
Can you use your 401(k) to buy a house without a penalty?
If you withdraw funds from your 401(k) account before age 59 1/2, the IRS can assess a 10% early withdrawal penalty, as well as taxes at your ordinary income tax rate. This penalty can be assessed if you default on your 401(k) loan as well, depending on the circumstances and plan rules.
Is it worth pulling from a 401(k) to buy a house?
No, it’s not worth taking out a 401(k) loan to buy a house due to the penalties and taxes that apply for early withdrawals. Instead, consider alternative options like down payment assistance programs or asking for gifted funds from friends or family.
How long does it take to pay back a 401(k) loan for a home purchase?
While the specific repayment terms will be determined by your 401(k) provider, you’ll generally need to pay back a 401(k) loan within five years, and quarterly payments are generally required.
Bottom line
There are several alternatives that may be a better option than a 401(k) loan or withdrawal, depending on your circumstances. It’s a good idea to explore all possibilities and run the numbers before choosing a path forward. It can also be a good idea to meet with a tax professional or financial advisor to explore all of your options.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Internal Revenue Service, “Retirement Topics - Plan Loans.” Accessed Dec. 19, 2025.
- Internal Revenue Service, “Retirement Topics: Exceptions to Tax on Early Distributions.” Accessed Dec. 19, 2025.
- Internal Revenue Service, “Retirement Topics - Hardship Distributions.” Accessed Dec. 19, 2025.
- Internal Revenue Service, “401(k) Plan Hardship Distributions - Consider the Consequences.” Accessed Dec. 19, 2025.
