Yes, with caveats big enough to change your answer. You can generally borrow against your 401(k) or take a hardship withdrawal from it to help fund a down payment — but "loan" and "withdrawal" are two completely different animals, with different tax bills, different risks, and (this is the part people get wrong constantly) different rules than the ones that apply to an IRA. Mixing them up is how people end up with a surprise tax bill in April.

Here's the short version before we get into the math: a 401(k) loan is money you borrow from yourself and pay back with interest — to yourself. A 401(k) withdrawal is money you take out and, unlike an IRA, generally can't touch penalty-free just because you're a first-time buyer. Let's take them one at a time.

401(k) Loan: Borrowing From Yourself

A 401(k) loan isn't a withdrawal at all — it's a loan, secured by your own vested balance, that you repay through payroll deduction, typically with interest that goes right back into your own account.

How much you can borrow: the IRS caps it at the lesser of $50,000 or 50% of your vested balance (if 50% of your vested balance is under $10,000, some plans let you borrow up to $10,000 regardless), per IRS retirement plan loan guidance. Not every plan offers loans at all, and not every plan allows the full IRS maximum — check with your plan administrator.

How you repay it: generally within five years via quarterly-or-more-frequent payments — except that the five-year clock doesn't apply if you're using the loan to buy your primary residence, per the IRS. Interest is typically the prime rate plus a point or so, and it's paid to your own account, not a bank — see NerdWallet's breakdown of 401(k) loan terms (as of 2026).

The part that bites people: if you leave your job — voluntarily or not — while a 401(k) loan is outstanding, the plan can demand the balance be repaid fast. Historically that meant 60 days. That changed with the Tax Cuts and Jobs Act, which created the "Qualified Plan Loan Offset" rule: if your loan balance gets offset because you separated from your employer, you now have until your tax filing deadline for that year, including extensions (so potentially as late as October 15 of the following year) to roll the outstanding amount into an IRA or new employer's plan and avoid it being treated as a distribution, per the IRS's plan loan offset guidance. That's meaningfully more breathing room than it used to be — but if you don't come up with the cash to roll it over in time, the unpaid balance becomes a taxable distribution, plus a 10% early withdrawal penalty if you're under 59½. Losing a job and then getting hit with a tax bill on top of it is a specific kind of bad month; plan for it if your industry is volatile.

401(k) Hardship Withdrawal: An Actual Withdrawal

This one is not a loan, has no repayment schedule, and comes with real tax consequences up front.

Buying a principal residence is one of the IRS's recognized reasons for a hardship withdrawal — but qualifying for a hardship withdrawal and qualifying for a penalty exception are two separate tests, and meeting the first doesn't automatically get you the second. In practice, for most buyers under 59½, a 401(k) hardship withdrawal for a home purchase means:

  • Fully taxable as ordinary income in the year you take it, on top of whatever else you earned that year (which can push you into a higher bracket at the worst possible time — the year you're also trying to qualify for a mortgage).
  • A 10% early withdrawal penalty, unless you separately qualify for one of the IRS's other exceptions (disability, certain medical expenses, etc.) — buying a first home is not one of them for a 401(k).

That last point is the one that trips people up, because it is true for an IRA. IRAs have a genuine $10,000 lifetime first-time-homebuyer exception to the 10% penalty — you'll still owe income tax on a traditional IRA withdrawal, but you skip the penalty. That exception does not extend to 401(k)s. As of early 2026, there's been talk of legislation to close that gap — a bill along those lines was introduced in the House — but as of this writing it hasn't become law, so treat any headline claiming otherwise as premature; see the NATP's rundown of why the 401(k) homebuyer exception talk is still premature. If your down payment money is sitting in an IRA rather than a 401(k), you're working with a meaningfully better deal.

One workaround worth knowing: if you have an old 401(k) from a previous employer, you can often roll it into an IRA first, then use the IRA's first-time-homebuyer exception on the amount you need. That's a real strategy people use — just don't try it with an active 401(k) at your current job without checking your plan's rules and talking to a tax professional first.

The Actual Tradeoff

Ignore the moralizing you'll find elsewhere about "never touch your retirement savings" — plenty of readers here have the financial cushion to make this a legitimate, calculated choice, not a desperation move. The real question is what you're giving up versus what you're getting.

What you're giving up: money that's no longer compounding tax-advantaged. Pull $30,000 out at 30 and it's not just $30,000 you're missing at 65 — it's $30,000 plus every year of growth on top of it, gone. That's the real cost, and it's bigger than the sticker price of the withdrawal or loan itself. A 401(k) loan mitigates this somewhat since you're repaying (with interest) into the same account — but you're still not invested in the market with that money while it's out, and it's coming out of paychecks you might otherwise be using to build other savings.

What you're getting: a bigger down payment now, in a market where waiting to save it the old-fashioned way could mean higher rates, higher prices, or both by the time you get there. It might mean clearing 20% down and dodging PMI, or it might mean the difference between qualifying for the house you want and not qualifying at all.

There's no universal right answer here, and anyone who tells you there is hasn't looked at your actual numbers. It depends on your timeline to retirement, how much you're pulling relative to your total balance, whether your job is stable enough that the "leave your job" risk on a loan is mostly theoretical for you, and what the rest of your financial picture looks like. Run the actual numbers — what you'd owe in taxes and penalties on a withdrawal, what a loan payment does to your monthly budget alongside a new mortgage payment — before you decide, ideally with a tax professional or fee-only financial planner who isn't selling you anything.

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