Using Retirement Savings for a Down Payment on a Richmond-Area Home: 401(k) Loans, IRA Withdrawals and What Lenders Count

Published October 17, 2026

Buyers in the City of Richmond, Chesterfield and Henrico often ask whether the money in a 401(k) or IRA can become a down payment. The short answer is that it can, in specific ways, and each way has its own rules and its own cost. This guide walks through what the IRS, Fannie Mae and the CFPB say, so you can ask better questions of the professionals who will actually advise you.

Three ways retirement money can reach a down payment

There are three routes that come up most often. A 401(k) plan may let you borrow from your own balance and repay yourself. An IRA owner may take a distribution and use it for a first home. Or a lender may count vested retirement funds as assets without you withdrawing anything, which matters for reserves. Each of these is treated differently by the IRS and by the lender, so we take them one at a time. For the wider menu of options, our guide to how much down payment you actually need in Richmond covers the rest.

401(k) loans: what the IRS says

The IRS retirement topics page on loans says a participant may borrow “50% of his or her vested account balance or $50,000, whichever is less.” The same page says that if 50% of the vested balance is under $10,000, a participant may borrow up to $10,000, although plans are not required to offer that exception. Whether your plan allows loans at all, and for what purposes, is a plan document question for your plan administrator.

On repayment, the IRS says loans generally must be repaid within five years, with payments made at least quarterly. It notes an exception to the five-year rule for a loan used to buy a primary residence, but the page we read does not state how long the longer period can be, so ask your plan administrator for the term it offers.

The risk is what happens if the loan is not repaid. The same IRS page says that if you leave your employer, the plan may require full repayment, and an unpaid balance is treated as a distribution reported on Form 1099-R. It also says you may be able to roll over the outstanding amount to an IRA or eligible plan by your tax return due date, including extensions, to avoid immediate income tax. If repayments are missed, the remaining balance can be taxable and may also face the 10% early distribution tax. Those are tax outcomes, and a tax professional should walk you through them before you sign anything.

IRA withdrawals and the first-time homebuyer exception

For IRAs, the IRS rule is different. IRS Publication 590-B says that even if you are under age 59 and a half, you do not have to pay the 10% additional tax on up to $10,000 of distributions used to buy, build or rebuild a first home. Several conditions apply, and the publication lists them:

The distribution must be used to pay qualified acquisition costs before the close of the 120th day after you received it. Qualified acquisition costs include the costs of buying, building or rebuilding a home and usual or reasonable settlement, financing or other closing costs. You are generally a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition, and if you are married your spouse must meet the same test. The $10,000 is a running total: the publication says that when added to all your prior qualified first-time homebuyer distributions, the total cannot be more than $10,000. If both spouses qualify, the publication says each can receive distributions up to $10,000.

Two cautions. First, the exception removes the 10% additional tax; it is not a statement about regular income tax, and the tax treatment of a Roth IRA differs, which is why the Consumer Financial Protection Bureau (CFPB) tells readers to consult a trusted tax or financial advisor before any withdrawal. Second, the IRS table of exceptions to the early distribution tax marks the first-time homebuyer exception as available for IRAs and not for qualified plans such as a 401(k), so do not assume the IRA rule carries over to your 401(k).

What lenders count: Fannie Mae’s rules on retirement assets

Lenders follow investor guidelines, and Fannie Mae Selling Guide section B3-4.3-03 is a good window into how conventional loans treat these accounts. It says vested funds from IRA, SEP and Keogh accounts, and from 401(k) accounts, can be used for the down payment, closing costs and reserves. The lender must confirm that the account is vested and that it allows withdrawals “regardless of current employment status,” and must verify that the borrower owns the account. For reserves, the section says the borrower is not required to withdraw the funds.

Debt is the other half of the lender’s review, and rules vary by loan program and by lender, so ask how your lender will treat a plan loan payment. Our guide to what lenders look at besides your credit score explains debt-to-income and reserves in plain terms, and our preferred lenders page is a place to start if you want to speak with one.

The CFPB adds a note of caution: in its guidance on where down payment money can come from, it says that borrowing your down payment increases your overall debt and your monthly payments. That is a reason to run the numbers on our mortgage calculator with the payment that results from the full picture, not only the loan amount.

Other sources to compare before you tap retirement money

Retirement funds are one source among several. Family help can come as a documented gift, which we cover in our guide to gift funds for a Richmond down payment. If you own a home now, sale proceeds are another source, and our article on the home sale gain exclusion explains a tax rule sellers often ask about. Our buyer process page shows how these pieces fit together, and the Mission Realty property search lets you see what is on the market while you sort out financing. Buyers in Midlothian and other parts of the metro run into the same rules.

Questions to take to your tax professional and lender

Bring a short list: Does my plan allow a loan, and how long is the repayment term for a home purchase? What happens to the loan if I change jobs? Which kind of IRA do I have, and how are distributions taxed? How will my lender document the funds, and will the loan payment count as debt? Written answers from your plan administrator, your tax professional and your lender will do more for your closing date than any general article, including this one.