How Can I Use My 401(k) to Buy a House? Loans, Withdrawals and Rules (2026)

Updated October 2026. How a 401(k) loan and a hardship withdrawal work for a home purchase, what each costs, and the mistake many guides make about the first-time buyer exception.

Yes, you can use a 401(k) to buy a house, in two ways: a 401(k) loan, if your plan offers one, or a hardship withdrawal. As of October 2026, IRS rules cap a 401(k) loan at the lesser of $50,000 or half your vested balance (or $10,000, if that’s more). A hardship withdrawal is taxed, and under age 59½ it usually adds a 10% tax. The $10,000 first-time homebuyer exception applies to IRAs, not 401(k)s.

Jump to: 🪜 Loan vs withdrawal · 💲 What it costs · 🏠 Step by step · 🤝 Alternatives · ❓ FAQ

Using retirement money for a home can close a gap in your down payment. It can also cost you years of growth. The right answer depends on how much you need, how stable your job is, and what else you could use. Here’s how the two routes compare.

Should you take a 401(k) loan or a hardship withdrawal?

How a 401(k) loan works

You borrow from your own balance and pay it back through payroll. The IRS loan FAQ sets the limits: the most a plan can lend is the greater of $10,000 or 50% of your vested balance, capped at $50,000. Repayment must normally happen within 5 years, in substantially equal payments of principal and interest, made at least quarterly. A loan used to buy your main home may be repaid over a longer period if your plan allows it.

Example: you have $80,000 vested and need $20,000 more for the down payment. Your plan could let you borrow up to $40,000, so $20,000 fits. You’d repay it, with interest, out of each paycheck.

How a hardship withdrawal works

A hardship distribution takes money out for good. Under the IRS “safe harbor,” costs directly related to buying your principal residence, not mortgage payments, count as an immediate and heavy financial need (IRS, hardship distributions). The amount is limited to what you need. It’s subject to income tax, and if you’re under 59½, it may also carry the 10% additional tax.

The first-time buyer exception: IRA only

Many articles say first-time buyers can take $10,000 from a 401(k) penalty-free. That’s not what the IRS table shows. The “qualified first-time homebuyers, up to $10,000” exception to the 10% tax applies to IRAs, and the IRS marks it “no” for qualified plans like a 401(k) (IRS, exceptions to tax on early distributions). If you want that exception, the money has to come from an IRA.

What does using your 401(k) really cost?

The cost isn’t only tax. It’s the growth you give up while the money is out.

• With a loan, you lose market gains on the borrowed amount until it’s repaid. Your take-home pay also drops while you repay, right when you add a mortgage payment.
• With a withdrawal, the tax bite shrinks what you can use. If you’re in the 22% bracket and owe the 10% additional tax, nearly a third of the withdrawal (32%) goes to federal taxes, so you’d need to take more to net the same amount.
• If you leave your job with a loan unpaid, your plan may offset the balance. The IRS says that offset can be rolled over, and after a job change you have until your tax filing due date, including extensions, to do it. Otherwise it’s taxed like a withdrawal.

Rates matter too. Freddie Mac’s 30-year average was 7.32% on October 22, 2026 (Freddie Mac). A bigger down payment lowers the loan you carry at that rate, which is why the 401(k) is tempting. Run both numbers before you decide.

How lenders see a 401(k) loan

Fannie Mae’s guide treats a loan secured by your 401(k) as a contingent liability. The lender doesn’t have to count its payment in your debt-to-income ratio, as long as it has the loan papers showing the account as collateral (Fannie Mae Selling Guide B3-6-05). Vested 401(k) funds are also acceptable for the down payment, closing costs and reserves (B3-4.3-03). Other loan programs have their own rules, so ask your lender early.

How do you use your 401(k) to buy a house, step by step?

1. Know your number. Work out the down payment, closing costs and a cash cushion. Our guide to closing costs helps.
2. Read your plan’s rules. Ask HR or the plan administrator whether loans and hardship withdrawals are allowed, the limits, the rate and the paperwork.
3. Pick the route. A loan if your job is stable and you can afford the payments; a withdrawal only if a loan isn’t possible.
4. Talk to your lender. Confirm how they’ll document the funds and treat any loan payment.
5. Time the money. Loans and withdrawals can take days to process. Have the funds in your account well before closing.
6. Budget the repayment. Add the 401(k) payment to your new monthly budget next to the mortgage.
7. Keep contributing if you can, at least enough to get any employer match.
8. Get tax help. A tax professional or financial advisor can check the full cost for your situation.

Before you start, our roadmap to buying a house covers the rest of the process, and choosing the right home loan can lower how much cash you need.

When does it make sense, and when doesn’t it?

It can make sense if your job is steady, you only need a small top-up, and the loan payment fits your budget. It’s riskier if your job could change, if you’d drain most of your balance, or if you’re close to retirement. Our guide on securing a home for your family when you retire looks at that side.

Think about the timing too. Taking money out after a market drop locks in the loss. Waiting six months to save more can cost less than a withdrawal with a 10% additional tax.

What are the alternatives to using your 401(k)?

• Roth IRA contributions. You can usually take out what you put in, and the $10,000 first-time homebuyer exception applies to IRAs.
• Down payment assistance. Many state and local housing agencies offer grants or second loans to qualified buyers.
• Gifts from family. Lenders often accept gift funds, usually with a signed gift letter.
• Cash from a sale. If you own a home now, selling it with a low listing cost leaves more for the next one.
• Lower closing costs. A buyer credit at closing can cover part of your costs.

For other routes, see ways to buy a home with bad credit and no cash, buying a house with cash and how capital gains from stocks affect home buying.

How can Beycome help you need less from your 401(k)?

When you buy a home with Beycome, there’s no upfront fee, and the program is open to every buyer on homes listed by other agents. Beycome keeps 1% of the price (minimum $1,499) and credits the rest of the buyer-agent commission at closing, with lender approval. On a $400,000 home with 3% offered, you’d get $8,000 back, money that may mean borrowing less from retirement.

The 3% is an example only: commissions are not set by law or NAR rules and are fully negotiable, sellers choose whether to offer any buyer-agent compensation, and since August 17, 2024, such offers can’t be shown on the MLS. The credit can’t apply where no buyer-agent commission is offered, like most FSBO homes, or on homes listed by Beycome sellers.

Selling first? A flat fee MLS listing from $99, with $0 at closing, keeps more of your equity for the next down payment. Check what you might net with our home value calculator. Closing in Florida or Texas? Beycome Title handles title and closing there, and also in Michigan, Ohio, Illinois and Indiana. If you’re weighing a remodel instead of a move, read Should You Remodel Your Property If You Plan Selling It?

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