Can I Use My 401(k) to Buy a House?

So, you want to buy a house—but you don’t have much of a down payment (if any). That’s usually when the nice pile of money sitting in your 401(k) starts to look mighty tempting.

What’s Changed for Using a 401(k) to Buy a House in 2026?

With home prices and interest rates still making home affordability tough, lawmakers are once again debating whether Americans should be allowed to use retirement savings to buy a home.

---

Avoid overpaying for your home with a RamseyTrusted® agent.

Find an Agent

---

In early 2026, members of Congress introduced proposals like the Home Savings Act, which would allow penalty-free 401(k) withdrawals for down payments and closing costs on a primary home.¹

For now, nothing has changed.

Under current law, most 401(k) withdrawals before age 59 1/2 are still subject to income taxes plus a 10% early-withdrawal penalty. Some plans allow loans or hardship withdrawals, but those options come with risks, including lost investment growth and added pressure if your job situation changes.

So the real question for home buyers isn’t “Can I use my 401(k)?”—it’s “Should I?”

Here’s the truth: Your retirement savings aren’t a house fund. Let’s break down how 401(k) withdrawals work today—and why stealing from your retirement to buy a house isn’t a smart move.

In July 2026, the national median sales price of existing homes was about $434,000.² A 20% down payment on a home like that runs around $87,000—and even a 5% first-time-buyer down payment is about $22,000. Meanwhile, the median 401(k) balance is roughly $38,000.³ For most people, the retirement account wouldn’t even cover the down payment. After a 10% penalty and taxes eating close to a third of any withdrawal, you’d net far less than the balance on your statement. It’s a lose-lose.

How Can I Use My 401(k) to Purchase a Home?

There are two ways to use your 401(k) to buy a house: early withdrawal or a 401(k) loan.

Ways People Try to Use a 401(k) to Buy a House

Early or Hardship Withdrawal

An early withdrawal is when you take money out of your 401(k) before you reach retirement age—which the IRS has determined to be 59 1/2 years of age.

Most plans will allow you to take money out of your 401(k) for what’s called a hardship withdrawal. That means you have to prove to your employer and your 401(k) plan manager that you need the money for something truly financially necessary, like:

• Medical expenses
• Funeral costs
• Down payments

But for some plans, putting a down payment on a house doesn’t qualify as a hardship. And the IRS won’t see your situation as a hardship if you have other ways of paying for it, like money from a spouse or child.⁷ It all depends on your employer’s 401(k) rules.

But even if you’re allowed to take the money out of your 401(k) to buy a house, that’s not the end . . . not by a long shot. There are fees and taxes involved, and they’re pretty hefty.

The 10% Early-Withdrawal Penalty Fee

If you take money out of your 401(k) before you’re 59 1/2, you’ll be hit with a 10% early-withdrawal penalty.⁸ There are exceptions, but they’re very specific (death, permanent disability, dividing assets after divorce, and so on)—and buying a house isn’t one of them.⁹ But don’t worry. It gets better . . . for the government.

The 20% Tax Withholding on 401(k) Withdrawals

Now we get into income taxes. That’s right—everyone’s favorite topic. You might remember that when you and your employer put money into your 401(k), it was deducted from your paycheck before taxes so the money could grow tax-free—unless you have a Roth 401(k), where the money is taken out after taxes.

It’s a really great system . . . if you leave the money in your 401(k). But when you take money out of your 401(k), it’s subject to those old reliable federal and (depending on your location) state income taxes. There’s a mandatory 20% federal tax withholding on early 401(k) withdrawals paid directly to you, which is just a prepayment, not your final bill.¹¹ Depending on your tax bracket, you could end up owing even more.

So, let’s say you want to take $80,000 out of your 401(k) to make a 20% down payment on a $400,000 home. You might feel like you found a shortcut to homeownership by taking money out of your 401(k). But about $24,000 of that $80,000 will get eaten up in taxes and penalties before you can even spend it—check out the examples below. Poof! You’ll have to take even more out of your 401(k) if you still want to put 20% down.

Immediate Cost of an Early 401(k) Withdrawal

And by the way, depending on your annual income, the amount you withdraw, and your state’s tax rates, your giant withdrawal to make that down payment will most likely bump you up into the next tax bracket (maybe even two), which means a higher tax bill for you for the year.

401(k) Loan

The second way to use your 401(k) to buy a house is even worse than the first: a 401(k) loan. It’s debt—debt made against yourself and your future. It’s such a bad idea that most 401(k) plans don’t even allow you to take out a loan.

With a 401(k) loan, the IRS limits how much you can borrow for a down payment: up to $50,000 or half the amount you have in your 401(k) account, whichever is less.¹² And if you use the loan to buy your house, your plan may let you stretch the repayment period beyond the standard five years—keeping you in debt longer and putting your retirement at risk—with interest, of course.¹³

On the surface, a loan might strike you as a smarter way to go. You’re borrowing from yourself, so the interest you pay essentially goes back to you and not some bank. So long as you keep making payments, you won’t have any penalties or taxes to deal with.

But let’s look at the long-term cost.

For one thing, the interest you’ll be paying yourself through a 401(k) loan—which is usually just a percentage point or so above the bank prime loan rate (currently nearly 7%)—is nowhere close to the average long-term return of 10–12% you could get if you left your money in your 401(k) in good growth stock mutual funds.^14,15 You wouldn’t trade 10–12% growth for a little more than 7%, right?

But here’s something even scarier. If you get fired, laid off, or leave your job before you pay off the loan, you’ll have to pay the balance in full before the federal tax deadline the following year (which we all know is on or around April 15). If you don’t make that deadline, the government will consider the loan an early withdrawal on your 401(k), and all the taxes and fees you tried to avoid by taking out the loan in the first place will kick in.¹⁶ That means as long as you have that 401(k) loan over your head, there’s no freedom to leave your company if, let’s say, your boss is a jerk or you’d just like to move to a more tax-friendly state.

And—hello!—a loan is nothing but big, fat debt. And debt is dumb. Don’t risk your retirement nest egg over a stupid debt that will take you years to pay off.

Some people might tell you that a loan like this is “good debt.” You’re investing in your future home, after all. Well, we’re here to tell you there’s no such thing as good debt. Debt robs you of your greatest wealth-building tool: your income. And you can’t use it to build wealth if it’s tied up in debt payments.

What Are the Alternatives to Using a 401(k) to Buy a House?

The best alternative to using a 401(k) is saving your own down payment in a money market or high-yield savings account while you temporarily pause retirement contributions. Aim for 20% down to avoid private mortgage insurance (PMI), and don’t pause retirement contributions for more than two years. Saving a down payment may feel slower than raiding your 401(k), but it keeps your retirement (and its compound growth) intact and skips the penalties and taxes entirely.

For this approach to work, you’ve got to be financially ready to buy—debt-free (Baby Step 2) with a fully funded emergency fund of 3–6 months of expenses (Baby Step 3). Once you’re there, our EveryDollar budgeting app can help you find margin in your paycheck to throw at the down payment. It’s the same discipline that got you out of debt, now aimed at a house.

If you’re a first-time home buyer, putting 5% down on a 15-year fixed-rate conventional loan is okay to get started—just know you’ll pay PMI until you reach enough equity to cancel it (usually around 20%). Either way, you get the house without messing with your retirement savings.

Should I Use My 401(k) to Buy a House?

Using money from a 401(k) to buy a house is just a bad idea. Sure, it’s possible to do. But just because you can do something doesn’t mean you should. And this idea definitely goes in the shouldn’t category.

First, if you’re so strapped for money while saving for a home down payment that you need to borrow from your 401(k), you’re not ready to be a homeowner. Think about it: After closing on a house, homeowners need margin in their budget to cover the costs that come with owning a home like mortgage payments, higher utility bills, and home maintenance.

On top of that, pulling money out of your 401(k) means stealing from your future retirement. Even if laws change and you’re allowed to take money out of your 401(k) without penalties, an early withdrawal will still cause damage: You lose the long-term growth on the money you stashed away for your retirement. Compound growth is a wonderful thing. It’s what turns a few thousand dollars’ worth of contributions from you and your employer into millions over time. Taking that money out of your 401(k) means you’re unplugging it from that potential. And you’ll lose out on some serious money in the long run.

Don’t believe us? Look at the numbers. Using our Investment Calculator, here’s what $80,000 left in your 401(k) could grow to if you don’t pull it out for a house:

Can I Slow Down My Investing to Buy a Home?

Technically you can, but it’s not always the smartest move. Splitting your income between retirement investing and a down payment could slow down progress in both. If that’s the case, focus on one step at a time: Pause retirement contributions entirely and put everything toward your down payment for a year or two (remember you should be debt-free and have a full emergency fund before you do any of that). If that pause isn’t enough to reach your down payment goal, un-pause investing and continue saving what you can for a down payment until you get there. After two years of pausing retirement savings, you’ll start losing out on too much compound growth.

How Do You Buy a House the Right Way?

Become debt-free, build an emergency fund, get intense about saving for a big down payment, and absolutely leave the money in your 401(k) alone until you’re actually ready to retire. The only time it’s okay to consider taking money out of your 401(k) early is to avoid bankruptcy or foreclosure. But those are catastrophic financial situations. Wanting to get into a house faster isn’t the same thing.

So, what should you do if you’ve got house fever and no money for a down payment? Cool off, grab a cold shower, and take a real, honest look at where you are financially. You have plenty of time, and there are better ways to save up. Get our free Saving for a Down Payment Guide.

Find a Real Estate Agent You Can Trust

Navigating this housing market can be tricky, so reach out to a real estate agent you can trust. For a fast and easy way to find one, try our RamseyTrusted^® program. RamseyTrusted agents are experts in your local market and can help you find the house that suits your family’s needs and budget. And since they’re RamseyTrusted, you can feel confident they’ll serve you the Ramsey way.

Frequently Asked Questions