You can make a withdrawal from your 401k but it would be subject to taxes and an early withdrawal penalty: buying a home would not qualify as a "hardship" for purposes of withdrawal. You may escape the penalty - but not the tax on the funds - if you haven't owned a home in the past two years and you meet other financial criteria.

An alternative is to take the funds out as a loan against the 401k - but many mortgage companies will not accept a down payment attached to a loan.

Most financial advisors (of which I'm not - I'm the tax guru) would be wary in this market of funding home purchases with retirement funds. It's not a terrific idea at the best of times, and real estate is not exactly the best investment these days.

Debbie,
As Kelly mentioned, a withdrawal from your 401(k) will be subject to income taxes, and potentially an early withdrawal penalty, if used for a home purchase. Up to $10,000 can be withdrawn without facing the penalty, if you're using the money to purchase the house and you haven't owned a home in the past two years, but you will still owe the income taxes on that money as well.

However, you cannot take a withdrawal from the plan unless you meet the plan's requirements to be eligible for a withdrawal. Withdrawals are often very limited while you still work for the plan. The Summary Plan Description should provide you information on what is necessarily to be eligible for a withdrawal if you still work for the company.

As Kelly pointed out, the alternative is to take a loan from the plan, and there are some favorable rules for paying back a 401(k) loan that's used to finance a home. But be cautious - you will need to pay back the money, plus interest (although the interest is credited to your account), and if you don't pay the money back in time (or you leave the employer before paying it back), it will be treated as a distribution and income taxes and penalties may apply anyway!

I hope that helps a little!

I'm the real estate guru, and an actual realtor -- so I love it when people buy houses! However, one reason so many people have gotten into trouble in the current crisis is that they bought without much financial cushion -- stretched themselves to buy, and then maybe lost a job or had unexpected medical bills.

For this reason, I think withdrawing money from your retirement funds to buy a house is a BAD idea. I know it's tough to wait, but if you can draw up a three- or five-year plan to save for a down payment -- and stick to it -- you'll be in much better shape when you do eventually buy.