Sometimes finding a home can be a long process, but you did it. You have finally found the home of your dreams. Now there is one thing that stands between you and your new home. It’s the Down Payment.

Some home buyers are looking to use their funds from their employer’s 401K program. There are a few things to consider when using these funds. First and foremost, these funds can not always be accessed unless you have retired, leave the company, or become disabled. Some companies will allow a ‘Hardship Withdrawal’, which is when there is an immediate and heavy financial need, including the purchase of the employee’s principal residence.

Sounds great, right? Well, the drawback to using these funds as a ‘hardship withdrawal’ is that you will pay taxes and penalties on the amount withdrawn from your plan, which often must be paid in the same year of the withdrawal. And while ‘Hardship Withdrawals’ are allowed by law, your employer is not required to provide them within your 401K plan. Before assuming you are able to withdraw these funds, check with your employer’s HR Department to confirm that your 401K program allows for ‘Hardship Withdrawals’.

Another approach to using your 401K program is to borrow against it. You can often borrower as much as 50 percent of your account balance. You will be required to pay interest on the loan, but the interest payment goes right back into your 401K account. The extra bonus about borrowing against your account is that the money is not taxable as long as it is paid back. Typically the payback period can be anywhere from five to thirty years.

A risk to point out when borrowing these funds is that you will be required to pay back the loan IN FULL, should you lose your job or leave your employer. This payback requirement is short, sometimes in as little as 60 days. If you are unable to pay it back within that time, the “loan” now becomes a “Withdrawal” and is subject to the same penalties and taxes as mentioned above. And although your 401K account can be rolled over from one employer to another employer without penalties, the loans from the 401K can not.

When the lender calculates your Debt-To-Income ratio, they will include the payments you are making on your 401K account along with your car payment, credit card payments, student loans, etc. That may seem unfair since you are borrowing against your own money, but it is still a debt that must be paid back over time.