Using your 401(k) to purchase property is generally allowed but not necessarily recommended. Here's why: A 401(k) loan is not taxed and won't affect your credit, but it could negatively affect your retirement savings. A 401(k) withdrawal, on the other hand, comes with a 10% penalty plus income tax from the IRS. We advise against this course.
You can use your 401(k) money to buy a home, but this is not the preferred route. Most first-time homebuyers are at an age where they should be investing in their retirement, not reducing its amount.
If you put down less than 20% on your down payment for a conventional loan, you will likely pay PMI. Wanting to avoid this expense, many consider using their retirement to reach the 20% threshold. However, considering the long-term costs and benefits, using your retirement to avoid PMI isn't too attractive after all.
If you're having trouble coming up with a down payment, remember that there are loan programs that require as little as 3.5% down. Explore our loan programs on our website and contact us for more info.