Can I Use My 401(k) to Buy a House? (What Might Be Changing)

What’s allowed under current 401(k) rules

As of today, there are two primary ways people use a 401(k) to help with a home purchase. The details can vary by employer plan, but the general framework is the same.

401(k) loan

A 401(k) loan lets you borrow from your own retirement savings rather than withdraw the money outright. Many plans allow loans of up to 50% of your vested balance, capped at $50,000.

The main appeal is that you’re paying the money back to yourself, usually through payroll deductions with interest. However, there’s a significant risk: if you leave your job or are laid off, the remaining loan balance may become due quickly. If you can’t repay it, the unpaid amount is typically treated as a withdrawal (deemed distribution), triggering taxes and possible penalties.

401(k) hardship withdrawal

A hardship withdrawal permanently removes money from your 401(k). Some plans allow this for certain expenses tied to purchasing a primary residence.

This option provides immediate access to cash, but it’s often the most expensive route. Hardship withdrawals are generally subject to income taxes, and if you’re under age 59½, an early-withdrawal penalty commonly applies. Unlike a loan, the money cannot be put back into your account, which can reduce your retirement balance and future growth.

An example of using a 401(k) for a down payment

Imagine you need $20,000 to close on a home.

You take a $20,000 401(k) loan and avoid upfront taxes and penalties, but you commit to repaying that amount — plus interest — through your paycheck. If you change jobs before the loan is paid off, the remaining balance may become taxable. Depending on your plan, you could be required to repay it quickly or face taxes and penalties by the end of the year.

If you instead take a $20,000 hardship withdrawal, you may owe income taxes and an early-withdrawal penalty, reducing the net cash you actually receive. Over time, you also lose out on the investment growth that money could have generated in your retirement account.

As you can see, the decision isn’t just about accessing funds, but about weighing the long-term costs or drawbacks of tapping into your 401(k) savings.

What penalty-free 401(k) withdrawals are currently allowed

While this post focuses on the question, “Can I use my 401(k) to buy a house?” it may be helpful to know that there are other situations in which you can make a penalty-free withdrawal from a traditional 401(k). These include:

• Age 59½ or older: Withdrawals made at or after age 59½ are not subject to the early-withdrawal penalty.
• Separation from service at age 55 or later: If you leave your job in the year you turn 55 or older, you may access that employer’s 401(k) without penalties.
• Permanent disability: If you become permanently disabled, qualifying withdrawals can be penalty-free.
• Death of the account holder: Beneficiaries can generally withdraw funds without early-withdrawal penalties.
• Qualified birth or adoption expenses: Up to $5,000 per child may be withdrawn penalty-free for qualifying birth or adoption costs.
• Substantially equal periodic payments: Penalty-free withdrawals may be allowed if you commit to a series of IRS-approved payments over time.
• Certain high medical expenses: Withdrawals used to cover unreimbursed medical expenses above IRS thresholds may avoid penalties.
• Money you owe the IRS: Distributions related to an IRS levy against the plan are penalty-free.
• Financial emergencies: Some plans allow up to $1,000 per year for emergency expenses under the SECURE Act.

Note that even when an early 401(k) withdrawal qualifies for an IRS penalty exception, the amount you take out is still generally subject to ordinary income tax unless you’re past retirement age or it’s a qualified Roth withdrawal.

What might be changing with penalty-free 401(k) down payments

Recent reports indicate the Trump administration is drafting an executive order that could allow buyers to use 401(k) and other retirement funds for home down payments without facing early-withdrawal penalties. Supporters argue that individual savers should have at least as much flexibility as institutional investors.

Sen. Josh Hawley (R-Mo.) said in a January 7, 2026, post: “For years, Wall Street has used your 401k money to buy single-family homes. We should ban them from doing it — but allow you to use your 401k to help you buy a home, without penalties or caps or taxes.”

If implemented, such a move could significantly lower the upfront cost barrier for some buyers. Until any executive action is finalized and implemented, existing 401(k) rules remain in place.

How to evaluate affordability before touching retirement savings

Before considering a 401(k) loan or withdrawal, it’s wise to step back and assess whether using your retirement funds actually improves your overall buying picture.

HomeLight’s Home Affordability Calculator below can help you estimate how much home you may be able to afford based on your income, debt, down payment, and other costs.

In some cases, you might find that adjusting your expectations — such as targeting a different price point or timing your purchase differently — can reduce or eliminate the need to tap your retirement savings at all.

If you’re unsure how these numbers translate in your local market, connecting with a knowledgeable real estate agent can make a meaningful difference. HomeLight’s free Agent Match platform can connect you with a top-rated local agent who understands pricing, strategies, and buyer assistance programs in your area.

When using a 401(k) might make sense (and when it’s risky)

There are situations where buyers consider using a 401(k), such as when they have a stable job, strong long-term retirement savings, and a clear plan to repay a loan quickly. Even then, many financial professionals urge caution.

Using a 401(k) becomes especially risky if it leaves you with little emergency savings, ties your housing plan too closely to your current employer, or significantly disrupts long-term retirement growth. For many buyers, the downside isn’t obvious until years later.

A local agent or financial advisor can help you pressure-test these scenarios. An experienced agent can also point out alternatives you may not have considered, such as homes that qualify for lower down payment programs or neighborhoods where prices stretch your budget further.

Other ways buyers fund a down payment

A 401(k) is not the only down payment option available to buyers. Depending on your situation, alternatives may include:

• Loan programs that require a lower down payment
• State or local down payment assistance programs
• Use gift funds for part or all of your down payment
• Structuring an offer that prioritizes affordability over competition
• See our Guide to the Best First-Time Home Buyer Programs

In addition, many IRAs allow penalty-free withdrawals of up to $10,000 for a first-time home purchase. This exemption typically applies only to the 10% early-withdrawal penalty, not income taxes, and there may be a lifetime limit per person. The rules also differ between Traditional and Roth IRAs.

The bottom line: You can use a 401(k) to buy a house

Yes, you can use a 401(k) to buy a house — but under current rules, it’s often a last-resort option rather than a first choice. While proposed policy changes could make retirement funds more accessible for homebuyers in the future, they don’t eliminate the need to weigh long-term financial consequences.

For buyers feeling stuck between rising costs and limited savings, the smartest next step is often clarity — understanding what you can afford, what options exist today, and how a local expert can help you move forward with confidence.

To learn more, visit HomeLight’s Buyer Resource Center, where you can search for answers to all your homebuying questions.

Editor’s note: This post is for educational purposes only, not financial advice. Before tapping retirement savings to buy a home, consider speaking with a financial advisor and exploring alternatives that may better protect your long-term goals.

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