Can I use a 401k Loan for down payment on a Home?

[Juan M Restrepo]

I am considering House Hacking in about 6 months or so. I am trying to put myself in a good financial position to buy a good property to do some cosmetic work. I was planning on using low money down (FHA/ 5 % conventional) to acquire it. I could max the contribution for my 401k as my expenses are low for 6 months and take out an 401k loan towards the down payment 6 months from now (have around 10k on my 401k by then). I would also have saved around 25k in cash by 6 months. Do loan officers allow you to use a 401k loan for a down payment on a primary residence?

Also, what would you do in my position? Would you max your 401k ( only reason I am doing this is for loans to use for real estate) or just save all the cash to buy the property for house hacking?

[George Blower]

@Juan M Restrepo

Here are the general considerations regarding 401k loans.

401k Participant Loans

• If your 401k plan allows for 401k participant loans, the maximum loan amount is equal to 50% of the balance up to $50k. The repayment terms for a 401k participant loan are equal monthly/quarterly payments of principal and interest (typically prime plus 1%) over a 5 year term (longer if used to acquire your principal residence).
• Please note that if you take a full $50,000 and then pay back the loan, you can't take another $50,000 until 12 months after the first loan was fully paid back.
• Per the loan offset rules that went into effect with the 2018 Tax and Job Act: if you leave your job and the loan is current at the time you leave your job but then the loan goes into default because you left your job, you will have until your tax return deadline (including any timely filed extension) to make the loan current by depositing the outstanding balance into an IRA (and thereby avoid the taxes and penalties that would otherwise apply).