Can I Use My 401(k) to Buy a House? Your Guide to using retirement funds for home purchase

Thinking About Using Your 401(k) to Buy a Home?

Can I Use My 401(k) to Buy a House? If you’re saving for a home, the money in your 401(k) might look like an easy way to boost your down payment. But before you dip into your retirement savings, take a moment to consider how it could affect your financial future.

At ALCOVA Mortgage, we understand the challenges homebuyers face—and we’re here to help you explore your options. In this guide, we’ll explain how to use your 401(k) to buy a home, break down the pros and cons, and share smarter strategies that can get you into your home without compromising your retirement.

Option 1: Borrow from Your 401(k)

Most 401(k) plans allow you to take a loan against your vested balance. You typically repay that loan—with interest—over five years. If you use the loan to buy a primary residence, your repayment window might stretch longer.

How It Works:

• You borrow up to 50% of your vested balance (capped at $50,000).
• You repay the loan through automatic deductions from your paycheck.
• You pay yourself interest, which goes back into your 401(k).

Pros:

• No early withdrawal penalties or income taxes apply (as long as you repay on time).
• You can access the money quickly.
• The interest you pay benefits your own retirement account.

Cons:

• Your 401(k) won’t earn compound growth while the funds are out.
• You repay the loan with after-tax dollars, then pay taxes again in retirement (double taxation).
• If you leave your job, you may need to repay the loan quickly—or face taxes and penalties.

✅ Tip: Always check your plan’s rules and speak with your HR department before taking out a 401(k) loan.

Option 2: Withdraw from Your 401(k)

Instead of borrowing, you can withdraw money from your 401(k) to buy a home. However, this route carries higher risks and costs.

What Happens When You Withdraw:

• If you’re under 59½, the IRS will charge a 10% early withdrawal penalty.
• You’ll also owe income tax on the withdrawn amount.
• Your retirement account permanently loses the withdrawn funds and their growth potential.

Some plans allow a hardship withdrawal for a first-time home purchase, but not all do. Even if your plan allows it, the financial hit can be steep.

Why You Should Think Twice

Before you use your 401(k), consider the long-term impact. You might solve your short-term cash problem but weaken your retirement security.

Here’s what’s at stake:

• Lost compound growth: Time is your greatest asset when saving for retirement. Missing even a few years of growth can cost you significantly later.
• Reduced contributions: When you repay a loan, you may pause or reduce your regular 401(k) contributions, which limits your retirement savings.
• Tax surprises: If you withdraw funds and fall into a higher tax bracket, you could owe more than you expect.

Smarter Alternatives to Using Your 401(k)

You have other options—ones that won’t derail your retirement.

1. Explore Low Down Payment Loans

You don’t need 20% down to buy a home. ALCOVA offers several mortgage options with minimal or no down payment:

• Préstamos FHA – Just 3.5% down
• Préstamos VA – 0% down for eligible veterans
• Préstamos USDA – 0% down in qualifying areas

👉 Explore your loan options here

2. Look Into Down Payment Assistance

Many state and local programs offer grants or forgivable loans to help you cover your down payment or closing costs. These programs can make a big difference—especially for first-time buyers.

👉 See if you qualify for assistance

3. Use Gift Funds

Family members can gift you part or all of your down payment. Lenders accept gift funds as long as they come with proper documentation.

4. Tap Roth IRA Contributions (Not 401k)

If you have a Roth IRA, you can withdraw contributions tax-free at any time. First-time homebuyers can also take out up to $10,000 of earnings penalty-free under certain conditions. This option gives you more flexibility than a 401(k).

Should You Use Your 401(k)?

You can use your 401(k) to buy a house—but you probably shouldn’t unless you’ve exhausted every other option.

You might consider it if:

• You’ve saved no other funds for a down payment
• You understand the risks and have a plan to repay
• You intend to stay with your employer for the full loan term
• You’re confident you can replenish your retirement savings

But for most buyers, the downsides outweigh the benefits. Instead of pulling from your future, lean on smarter tools designed to help you buy a home now—without regret later.

Work with a Mortgage Expert

Before you touch your 401(k), talk to someone who can walk you through your options. At ALCOVA, we guide you through mortgage programs, down payment solutions, and financial strategies that work for you—now and in the future.

👉 Talk to a local loan officer
👉 Get pre-qualified today

Final Thoughts

Buying a home should feel like a step forward—not a step back in your financial life. While your 401(k) can provide quick funds, it can also cost you decades of retirement growth.

Let ALCOVA help you find a better path to homeownership—one that protects both your dreams today and your security tomorrow.