Should You Use a 401K Loan to Buy a House?
Tapping into a 401(k) to buy a home should be a last resort. While it’s possible through a 401(k) loan or hardship withdrawal, doing so often undermines your long-term retirement goals. You not only risk derailing the power of compound growth, but you may also face taxes, penalties, and lost investment returns that are hard to recover. When It Might Make Sense In rare situations, accessing 401(k) funds might be considered. For instance, if a borrower is just shy of the 20% down payment threshold, using a 401(k) loan to bridge the gap could help avoid private mortgage insurance (PMI) and secure a better mortgage rate. However, most banks require down payment funds to be "seasoned," meaning they've been in your bank account for a certain period, typically 60–90 days so timing and planning are crucial. When to Avoid It Don’t tap into your 401(k) if: It compromises your retirement goals. You're uncertain about job stability; if you lose your job, most 401(k) loans must be...