Tapping 401k or IRA for down payment?

posted 3 years ago in Home
Post # 3
3570 posts
Sugar bee
  • Wedding: September 2011

We had this option but decided it wasn’t worth it.  In our case, if you wanted to withdraw or borrow off your 401K, you couldn’t contribute to it for 6 months and there would be no employer matching.  I was also shaky about getting involved with telling DH’s company we wanted to withdraw from it because it fell under a “hardship withdrawal.”  With interest rates as low as they are, we didn’t think it was worth it to touch the retirement.

My BIL borrowed against his for a downpayment, but he is a teacher and I think it was a better deal for him.  


Post # 4
2627 posts
Sugar bee
  • Wedding: November 1999

@LittleSassLotsofClass: I dont think this is a smart financial move. Often there is a penalty plus you have to pay income tax on the amount you withdraw so a double penalty, which doesnt make if worth it, and even if it wasnt, its important retirement money.

The argument for it is that it would go towards equity in your home and is “still there” but if the our recent downturn in real estate has taught people equity in a house can go away very quickly and then you are left with no equity and less retirement.

You could reduce your 401K payment (although it would be after tax) and put it into a savings specifically for a downpayment. This would help you save faster and avoid the penalties you face.  But then be sure you up that payment again as soon as yo uhave enough for a downpayment. Do not underestimate the value of saving early or enough for retirement.

Its a personal decision for many, but to me this is not a smart financial one and will set you further back than not buying a house right now would.

Post # 5
3978 posts
Honey bee
  • Wedding: September 2014

I would not do this

Post # 7
77 posts
Worker bee
  • Wedding: June 2012

I work for a very large brokerage firm that mainly deals with IRA’s, but I can’t help you with the 401k part.


Regardless of your age, if you are a new homeowner and withdraw money from your IRA to purchase the home, you have 120 days to use the money for a home without being penalized. “New homebuyer” means anyone who has not made a home purchase in the past 2 years. The firm/financial advisor that holds your account should be able to advise you on what they think you should do. Trust their word over everyone else’s. 🙂


Post # 8
10384 posts
Sugar Beekeeper
  • Wedding: September 2010

IMO if you can’t afford a down payment without borrowing from retirement accounts, you can’t afford a house. Most banks want to see 6 months worth of payments in an untouched account on top of closing, down payment, appraisal etc costs. If you are so tapped out that you are dipping into retirement accounts, what is left?

Post # 10
3156 posts
Sugar bee
  • Wedding: June 2012

No way, no how!  The penalties you’d take (on the 401K at least) would be literally flushing your money down the toilet.  If you’re not ready, you’re not ready.  Don’t become “house poor”!


Post # 11
7281 posts
Busy Beekeeper
  • Wedding: October 2011 - Bed & Breakfast

Bad idea. You would be robbing your future just to satisfy your urge to have a house right now.

Post # 12
6964 posts
Busy Beekeeper
  • Wedding: August 2012

Nope. Wouldn’t do it.

Post # 13
291 posts
Helper bee
  • Wedding: August 2012

Please do not do it, really bad idea. Save money and always remember that all good things come for those that save and wait . I know that the pressure to buy a home is huge but resist peer pressure and do not compare yourself with other people.

First save for at least 6 months to a 1 year emergency fund, then pay off all your debts and then start saving money for a house. You need to have an excellent credit score to get the best interest rates.

Having a piece of the American Dream takes time, sacrifice in not buying things but in the end, it is totally worth it.

Post # 14
8483 posts
Bumble Beekeeper
  • Wedding: September 2013

I really don’t know much about it, but it doesn’t sound like a good idea to me.

Post # 15
1664 posts
Bumble bee
  • Wedding: October 2013

I thought about this but didn’t do it. You will NOT pay the penalty but you WiLL have to pay taxes. The max you can take out for a first time home purchae is 10k and taxes are usually around 40%….yikes. It’s not worth it. 

Post # 16
10453 posts
Sugar Beekeeper
  • Wedding: January 2011

Since everyone is saying don’t, I’ll post even though it’s about RRSPs.

I think it is worth if it allows you to have a 20% downpayment which someone wouldn’t otherwise have.  That way you avoid paying CMHC fees (similar to PMI).

There’s no penalty for new home buyers to do so though, but it has to be paid back over a period of 15 years (or less), otherwise it becomes taxable.

DH and I considered it just so we would have enough emergency money after putting 20% down, but we were able to save up enough to feel comfortable so we didn’t end up touching them.

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