Can I use my 401(k) or IRA for a down payment?

What does the lender accept?

Fannie Mae's Selling Guide lets you use vested balances in a 401(k), IRA, SEP or Keogh account. The lender confirms you own the account, how much is vested, and that the plan allows withdrawals. For reserves, you don't have to take the money out at all.

Is a 401(k) loan better than a withdrawal?

It can be, for qualifying. Fannie Mae treats a loan secured by your own financial assets, such as a 401(k), as a return of equity, and its payment doesn't have to be counted as a long-term debt. Your plan decides whether loans are allowed and on what terms.

What about FHA?

FHA lenders can count part of a retirement account's value, after allowing for taxes and penalties, and if you need the money to close, you'll show proof of the withdrawal.

What about taxes and penalties?

Early withdrawals can be taxed and can face an additional tax. The IRS lists an exception for up to $10,000 from an IRA used for a qualified first-time home purchase; other plans, such as a 401(k), have their own rules. Tom doesn't give tax advice, so check with a tax advisor before you move retirement money.

The down payment sources guide covers gifts, savings and assistance programs too.