Yes, you can usually use money from a 401(k), IRA, or similar retirement account toward a home purchase, either by withdrawing it or, if your employer plan allows, by borrowing from the plan. Fannie Mae and FHA both accept vested retirement funds for the down payment, closing costs, and reserves, but if you need the money at closing, the lender has to see that it was actually withdrawn or borrowed and deposited. Retirement money you leave invested can often count as reserves without being touched. The tax side, including any early withdrawal tax, is set by the IRS and your plan, so it's a question for your tax preparer before you move money.
People say "using my 401(k)" for three very different things, and the lender treats each one differently.
If you only need to show reserves, you may not need to touch the account at all. If you need cash for closing, you'll need either a withdrawal or a loan, and the paper trail to prove it.
Fannie Mae's Selling Guide B3-4.3-03 says vested funds from IRAs, SEP and Keogh accounts, and 401(k) accounts are acceptable sources for the down payment, closing costs, and reserves. The lender must verify you own the account and confirm it's vested and allows withdrawals regardless of your current employment status. When the funds are used for reserves, Fannie doesn't require them to be withdrawn. If the account holds stocks, bonds, or mutual funds, Fannie's rules on valuing those assets and documenting their sale also apply.
On the debt side, Fannie's B3-6-05 says a loan secured by your own financial assets, including a 401(k) or IRA, is a contingent liability that doesn't have to be counted in your monthly debts, as long as the lender gets the loan document showing the account as collateral. If you also use that same account for reserves, the lender subtracts the loan from the balance first.
Freddie Mac has its own asset rules in its Guide, which wasn't accessible to check online for this update, so your lender confirms the details if your loan goes to Freddie.
HUD Handbook 4000.1 lets the lender count up to 60 percent of the value of your retirement accounts, less any existing loans, unless you show conclusive evidence that a higher percentage can be withdrawn after federal income tax and withdrawal penalties. The part you don't use for closing, after adjusting for taxes and penalties, can count as reserves. The lender needs your most recent monthly or quarterly statement and the plan's terms for withdrawals, and if any of it is needed for funds to close, proof that it was liquidated. If you have a retirement account loan, the lender reduces the account value by the loan balance (HUD 4000.1 II.A.4.d.iii(C) and (K)).
HUD's minimum required investment on an FHA purchase can come from your own retirement funds once they're properly withdrawn or borrowed and documented. See FHA loans for the rest of the program.
VA and USDA verify assets under their own handbooks. Retirement money can be documented the same general way: statements, plan terms, and proof of the withdrawal or loan if you need it at closing. Ask me how your retirement assets are counted on your specific file.
Desktop Underwriter, LPA, and FHA's TOTAL Scorecard look at the assets the lender enters. Entering the full balance of a retirement account as cash to close, when the money hasn't been withdrawn, is a common way a file gets reworked late. The lender enters what program rules allow and updates it once the funds actually move.
According to the IRS, most retirement plan distributions are subject to income tax, and amounts withdrawn before age 59 and a half generally carry an additional 10 percent tax unless an exception applies. The IRS lists a qualified first-time homebuyer exception of up to $10,000 that applies to IRAs, not to 401(k) and other qualified employer plans. Many 401(k) plans allow hardship distributions, and the IRS lists costs directly related to buying your principal residence as a recognized hardship, but hardship distributions are still subject to income tax, may be subject to the 10 percent additional tax, and can't be repaid to the plan. Roth accounts have their own rules. These are IRS rules, not mortgage rules, so confirm how they apply to you with a tax preparer.
Remember that taxes come out of the withdrawal or are owed later. If you need a certain amount at closing, plan for the withholding.
The IRS says a plan may, but isn't required to, offer loans. If it does, the most you can borrow is generally the lesser of $50,000 or the greater of $10,000 or 50 percent of your vested balance. Most plan loans must be repaid within five years, but a loan to buy your principal residence may be allowed a longer term. IRAs can't make loans at all.
The catch is what happens if you leave the job. Your plan may reduce, or offset, your account by any unpaid loan balance, and the IRS treats that offset as a distribution, which can bring taxes unless you roll it over in time. Ask your plan administrator for the loan terms in writing before you rely on it.
Money that arrives in your bank account shortly before closing will raise questions. That's normal; it's just the large deposit paper trail. If the deposit matches the withdrawal confirmation, it's easy to explain.
Retirement money is real money, but it's often the most expensive money you have once taxes and lost growth are counted. Before you withdraw, compare it with:
That isn't saying retirement money is the wrong choice. Sometimes it's the right one. It's a trade, and it's worth seeing the whole picture first.
This example is made up to show the moving parts.
Lena is buying a home in Haltom City with an FHA loan. She has a vested 401(k) balance of $60,000 and $4,000 in checking. Her plan allows loans. She borrows $15,000 from the plan for the cash she needs to close, and her lender documents the loan agreement, the deposit into her checking account, and her latest 401(k) statement. For FHA, the lender reduces her retirement asset by the $15,000 loan and can count up to 60 percent of what's left as an asset, so she still shows money in reserve. She also asks whether she could instead withdraw "penalty free because it's a house." Her tax preparer explains that the IRS first-time homebuyer exception applies to IRAs, not her 401(k), so the loan is the better fit for her. She also gets the plan's written terms on what happens to the loan if she changes jobs.
Thinking about using your 401(k) or IRA for a Texas home? Let me show you how much is needed at closing, how much can stay put as reserves, and whether other help could cover part of it, before you request any money. Schedule a call, or when you're ready, start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026