{"id":7373,"date":"2025-05-09T10:49:24","date_gmt":"2025-05-09T15:49:24","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=7373"},"modified":"2025-09-04T08:50:04","modified_gmt":"2025-09-04T13:50:04","slug":"how-homebuyers-can-use-their-401k","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/how-homebuyers-can-use-their-401k\/","title":{"rendered":"How Homebuyers Can Use Their 401k"},"content":{"rendered":"\n<p>For many buyers, the hardest part of buying a home is saving up the down payment. If most of your money is tied up in a 401(k), the question is natural: <em><strong>should you dip into retirement savings to buy a house?<\/strong><\/em><\/p>\n\n\n\n<p><\/p>\n\n\n\n<p>Before you touch your retirement, remember: one of the best ways to save thousands is simply to <a href=\"https:\/\/tomo.com\/mortgage\/interest-rates-today?utm_source=tomo_blog\" title=\"compare lenders.\"><strong>compare lenders<\/strong>.<\/a> A lower rate or fewer fees often saves more than raiding your 401(k). But if you\u2019re considering it, here\u2019s what it actually looks like in practice.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Two main ways to use your 401(k)<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>1. Borrow with a 401(k) loan<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>How much you can borrow:<\/strong> Up to $50,000 or 50% of your vested balance, whichever is less.<\/li>\n\n\n\n<li><strong>Repayment:<\/strong> Typically five years, though longer is allowed for your primary home. Payments come from your paycheck.<\/li>\n\n\n\n<li><strong>Interest:<\/strong> Usually prime +1\u20132%, but it goes back into your account.<\/li>\n\n\n\n<li><strong>Risk:<\/strong> Leave your job and the balance is due within 60 days \u2014 otherwise it\u2019s treated as a taxable withdrawal with penalties.<\/li>\n<\/ul>\n\n\n\n<p><strong>Example:<\/strong> Maria has $70k in her 401(k). She borrows $35k for a down payment on a $300k starter home. Her repayment is ~$320\/month. She gets into her home sooner, but if she loses her job, the loan flips into a taxable withdrawal overnight.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>2. Take a 401(k) withdrawal<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>How it works:<\/strong> Money comes out permanently, no repayment.<\/li>\n\n\n\n<li><strong>Taxes + penalties:<\/strong> If you\u2019re under 59\u00bd, expect income tax <em>plus<\/em> a 10% penalty.<\/li>\n\n\n\n<li><strong>Future cost:<\/strong> You lose decades of compounding growth.<\/li>\n<\/ul>\n\n\n\n<p><strong>Example:<\/strong> James withdraws $20k at age 32. After taxes and penalty, he nets only ~$13.5k. That $20k could have grown to over $60k in 20 years. He\u2019s trading long-term wealth for short-term access.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Quick scenario: $80k now vs $80k later<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Scenario<\/th><th>What happens now<\/th><th>What it costs later<\/th><\/tr><\/thead><tbody><tr><td><strong>Borrow from 401(k)<\/strong><\/td><td>$80k loan \u2192 20% down on a $400k home today<\/td><td>Repay loan, but lose years of investment growth. That $80k left untouched could have doubled or tripled over 30 years.<\/td><\/tr><tr><td><strong>Keep funds invested<\/strong><\/td><td>Wait 5 years, buy a $425k home with savings<\/td><td>401(k) grows to ~$112k at 7% growth, but risk of higher home prices and rates.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>It\u2019s the classic trade-off: quick access to cash now versus a bigger retirement balance later.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Other ways buyers use 401(k) loans<\/strong><\/h3>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Renovations:<\/strong> Priya used $15k to fix her kitchen, paying herself back instead of using a high-interest personal loan.<\/li>\n\n\n\n<li><strong>Debt payoff:<\/strong> Sarah used $12k to clear credit cards, improving her debt-to-income ratio before applying for a mortgage.<\/li>\n\n\n\n<li><strong>Bridge funding:<\/strong> David borrowed $25k for a down payment while waiting to close on the sale of his old home.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Smarter alternatives before tapping retirement<\/strong><\/h3>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Low down payment mortgages:<\/strong> <a href=\"https:\/\/tomo.com\/mortgage\/rates\" title=\"FHA loans \">FHA loans <\/a>(3.5% down), <a href=\"https:\/\/tomo.com\/mortgage\/rates\" title=\"VA\">VA<\/a> and USDA loans (0% down for those who qualify).<\/li>\n\n\n\n<li><strong>Down payment assistance programs:<\/strong>\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/www.calhfa.ca.gov\/dream\/index.htm\" target=\"_blank\" rel=\"noopener nofollow\" title=\"\">California Dream For All Shared Appreciation Loan<\/a> \u2014 up to 20% of the purchase price.<\/li>\n\n\n\n<li><a href=\"https:\/\/www.thetexashomebuyerprogram.com\/\" target=\"_blank\" rel=\"noopener\" title=\"\">Texas Homebuyer Assistance Program<\/a> \u2014 up to 5% of the loan amount.<\/li>\n\n\n\n<li><a href=\"https:\/\/www.floridahousing.org\/programs\/homebuyer-overview-page\/hometown-heroes\" target=\"_blank\" rel=\"noopener\" title=\"\">Florida Hometown Heroes Program<\/a> \u2014 up to $35,000.<\/li>\n\n\n\n<li><a href=\"https:\/\/www.nyc.gov\/assets\/hpd\/services-and-information\/pages\/homefirst-downpayment-assistance-program\" target=\"_blank\" rel=\"noopener nofollow\" title=\"\">NYC HomeFirst Down <\/a><a href=\"https:\/\/www.nyc.gov\/assets\/hpd\/services-and-information\/pages\/homefirst-downpayment-assistance-program\" target=\"_blank\" rel=\"noopener\" title=\"\">Payment<\/a><a href=\"https:\/\/www.nyc.gov\/assets\/hpd\/services-and-information\/pages\/homefirst-downpayment-assistance-program\" target=\"_blank\" rel=\"noopener nofollow\" title=\"\"> Assistance<\/a> \u2014 up to $100,000.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Gift funds from family<\/strong> \u2014 allowed by many lenders if properly documented.<\/li>\n\n\n\n<li><strong>Savings strategies<\/strong> \u2014 build staged goals ($5k, $10k, $15k) to keep momentum.<\/li>\n<\/ul>\n\n\n\n<p><strong>Example:<\/strong> Buyer C in Texas combined $8k in assistance with an <a href=\"https:\/\/tomo.com\/blog\/is-an-fha-loan-a-good-idea\/\" title=\"FHA loan\">FHA loan<\/a>, covering nearly her entire <a href=\"https:\/\/tomo.com\/blog\/whats-the-typical-down-payment-on-a-house\/\" title=\"down payment\">down payment<\/a> without touching her 401(k).<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>The bottom line<\/strong><\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Using a 401(k) for a home can be a bridge, but it\u2019s rarely the cheapest option. Loans are safer than withdrawals, but both come with trade-offs: extra monthly payments, tax risk, and lost retirement growth.<\/p>\n\n\n\n<p>Ask yourself:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Can I reach my down payment another way?<\/li>\n\n\n\n<li>What\u2019s the long-term cost to my retirement balance?<\/li>\n\n\n\n<li>Do I have a safe repayment plan if I borrow?<\/li>\n<\/ul>\n\n\n\n<p>For most buyers, the smarter path is patience, assistance programs, or a low-down-payment mortgage \u2014 not tapping their retirement savings.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>For many buyers, the hardest part of buying a home is saving up the down payment. If most of your money is tied up in a 401(k), the question is natural: should you dip into retirement savings to buy a house? Before you touch your retirement, remember: one of the best ways to save thousands [&hellip;]<\/p>\n","protected":false},"author":31,"featured_media":7634,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[299,300,297],"class_list":["post-7373","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-buying-your-first-home","tag-debt-roundup","tag-money-saving-tips"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/tomo.com\/blog\/wp-content\/uploads\/2025\/05\/u6751982626_retirement_with_lots_of_money_-chaos_5_-ar_43_-_63399cf7-3f3d-4eeb-8c0f-32fca7362edd_1.png","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/7373","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/users\/31"}],"replies":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/comments?post=7373"}],"version-history":[{"count":4,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/7373\/revisions"}],"predecessor-version":[{"id":7506,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/7373\/revisions\/7506"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media\/7634"}],"wp:attachment":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media?parent=7373"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/categories?post=7373"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/tags?post=7373"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}