Use Retirement Savings For Down Payment
Using Retirement Savings to Buy a Home: What Buyers Need to Know
Saving for a home down payment can be one of the biggest challenges for buyers today. With rising home prices and higher mortgage rates, some buyers consider tapping into retirement accounts like a 401(k) or Individual Retirement Account (IRA) to fund their purchase.
While these options can provide access to cash, financial experts say buyers should carefully evaluate the long-term impact on their retirement security before making a decision.
Why Some Buyers Turn to Retirement Savings
In recent years, home affordability has become a major hurdle across the U.S.
According to data from Redfin, the median down payment in December reached about $64,000, a significant amount for many households.
At the same time, retirement accounts have grown substantially thanks to strong stock market performance. Data from Fidelity Investments shows:
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The average 401(k) balance reached $146,400 in 2025
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The average IRA balance reached $137,095
However, the median balances are much lower, meaning many savers may not have enough funds to comfortably support both retirement and a home purchase.
How Long It Takes to Save for a Down Payment
According to an analysis by Realtor.com, the typical U.S. household now needs about seven years to save for a home down payment.
Because of this challenge, buyers often rely on multiple sources for their down payment:
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Personal savings
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Financial help from family
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Proceeds from investments
Data from the National Association of Realtors shows:
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59% of first-time buyers relied on savings
Only a small percentage used retirement funds:
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3% withdrew money from an IRA
Borrowing From a 401(k): What Are the Rules?
Many 401(k) plans allow participants to borrow from their retirement account to help purchase a primary residence.
According to rules from the Internal Revenue Service, borrowers can generally take:
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Up to 50% of their vested account balance, or
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A maximum of $50,000
For savers with less than $10,000 in their account, some plans may allow borrowing the full balance.
The loan must typically be paid back with interest, often within five years, though longer repayment periods may apply for home purchases.
Risks of Using Retirement Savings
Before using retirement funds to buy a home, experts say buyers should understand the potential downsides.
1. Reduced retirement savings
Money withdrawn from retirement accounts loses the opportunity to grow through compound interest over time.
This could significantly reduce future retirement income.
2. Repayment obligations
If you take a 401(k) loan, you must repay it while also covering new homeownership costs such as:
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Mortgage payments
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Property taxes
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Homeowners insurance
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Maintenance expenses
3. Job loss risk
If you leave or lose your job before repaying the loan, the remaining balance could become a taxable distribution, often with an additional 10% penalty.
The Hardship Withdrawal Option
Some retirement plans allow what’s called a hardship withdrawal, which can be used for certain financial needs, including purchasing a primary residence.
However, these withdrawals have major drawbacks:
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The money does not need to be repaid, but
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It reduces retirement savings permanently
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It is taxed as income
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Savers younger than 59½ usually face a 10% penalty
Because of this, many financial experts recommend borrowing instead of withdrawing, when possible.
Using an IRA for a First-Time Home Purchase
IRAs follow different rules than 401(k) plans.
First-time homebuyers can withdraw up to $10,000 from an IRA without the 10% early withdrawal penalty if the funds are used for a home purchase.
However, the withdrawal is typically still subject to income taxes, and it still reduces long-term retirement savings.
Balancing Homeownership and Retirement Planning
Financial expert Stephen Kates advises buyers to carefully evaluate the numbers before accessing retirement funds.
Planning ahead is essential to ensure that buying a home today does not compromise financial stability later in life.
A strong home buying strategy may include:
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Evaluating loan options
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Exploring down payment assistance programs
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Improving credit scores to secure better mortgage rates
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Creating a long-term financial plan
Thinking About Buying a Home?
Purchasing a home is one of the biggest financial decisions you’ll make, and having the right guidance can help you make smarter choices.
The team at Laura Graves Real Estate helps buyers navigate the market, understand financing options, and find properties that align with their financial goals.
Whether you’re a first-time buyer or planning your next move, their expertise can help you explore the best opportunities available.
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