401(K) for down payment

USING YOUR 401(K) AS A DOWN PAYMENT

You’ve finally found the home of your dreams and secured your mortgage loan – now comes the time to consider how you’ll finance your down payment.

One popular method opted for by many home buyers today is to source funding from their employer-sponsored 401(k) program. While withdrawing from your 401(k) is usually reserved for retirement, you can make an exception w hen it comes to purchasing a new house.

Mortgage borrowers are traditionally offered two simple, cost-effective choices:

  • Borrow against your 401(k). At any age, you can withdraw up to 50% of your 401(k) balance (as much as $50,000), without being taxed. The interest you pay on the loan goes back into your account – the money you withdraw for the down payment is also not taxed if your home loan is paid off with five to 30 years.
  • “Hardship” withdrawals. Many company 401(k) plans permit certain these withdrawals in certain exceptions, like the purchase of an employee’s principal residence.

Accessing your 401(k) gives you immediate, assured and liquid funding for your down payment, putting you on the path to paying off your home loan sooner. Borrowers should take special consideration if tapping into their account is the right decision. With hardship withdrawals, you’re subjected to taxes and penalty fees. If you leave your place of employment, most 401(k) withdrawals are due, in full, in a short period of time – sometimes by 60 days.


Like all of our mortgage services, we can help you decide if 401(k) funds are the right down payment option for you in your home loan experience.