Using Retirement Savings for a Down Payment Could Be Financial Boon for First-Time Buyers, Study Finds

Federal policymakers have been debating whether Americans should be able to pull money from their retirement accounts in order to afford a downpayment on a new home. While financial experts have cautioned against the idea, two studies released this month point to potential benefits.As it stands, homeowners can take out a loan on their 401(k) for a down payment. They must then repay the loan with interest. For an IRA, they can withdrawal up to $10,000 to use on a down-payment on a home. Anything other than that incurs a 10% early withdrawal penalty from either kind of account. But funding a down payment using retirement funds could make sense, the Urban Institute said in a study this month. The think tank examined a few ways to invest in a house—paying all-cash, versus putting some money down, and refinancing—and compared the returns they generated from 1987 to 2025.Those who are maximizing their refinancing opportunities and don't default can have comparable, or better, returns compared to investing in a retirement account, the study found."Based on financial returns, our empirical analysis confirms that funding a down payment with one’s 401(k) proceeds can be a winning proposition...