Yes, in two ways, and they are not equally sensible: a 401(k) loan lets you borrow up to $50,000 or half the balance and pay yourself back, while a withdrawal before 59 and a half is taxed as income and usually carries a 10 percent penalty, with no first-home exception (that exception belongs to IRAs, and is capped at $10,000).
The two routes are confused constantly, including by people selling houses. The loan is a cash flow decision with a real but manageable risk. The withdrawal is expensive enough that it is usually the wrong answer, and the rules that people think make it cheap belong to a different account type.
The loan
If your plan allows loans, you can generally borrow the lesser of $50,000 or half the vested balance, repaid over five years, or longer where the loan is for a primary residence. The interest is paid to your own account, which is what makes people call it free, and it is not: the money is out of the market while it is out, and that is the real cost.
The risk to know about is leaving the job. Repayment terms accelerate, and an unpaid balance is treated as a distribution, taxed and usually penalized, in a year when you have just changed employers.
The withdrawal
A hardship withdrawal for a principal residence is permitted by many plans, but permitted is not the same as painless: it is ordinary income for the year, plus 10 percent if you are under 59 and a half, and it cannot be paid back. Taking $30,000 can easily cost $10,000 in tax and penalty and remove decades of compounding.
The $10,000 first-home exception people cite is an IRA rule, not a 401(k) rule. It waives the penalty, not the income tax, and it is a lifetime limit.
What lenders think of it
A 401(k) loan payment counts as debt in most underwriting, so it can reduce how much you qualify for. Withdrawn or borrowed funds also have to be sourced and seasoned like any other large deposit, so keep the paperwork rather than moving money quietly a week before applying.
Before either, check whether a 3 percent down program, down payment assistance or a seller concession closes the same gap. General information, not tax or investment advice: this is a question for your plan administrator and a tax preparer.
Questions people ask
Is it a bad idea to take money from a 401k to buy a house?
A withdrawal usually is, because tax, penalty and lost compounding often cost more than the house benefits. A loan is defensible when the alternative is waiting years, and the job-change risk is understood.
Can I use my IRA to buy a first home?
Up to $10,000 of earnings can be withdrawn penalty-free for a first home from an IRA, once in a lifetime. Income tax still applies on a traditional IRA. Roth contributions come out tax and penalty free regardless.
Does a 401k loan affect mortgage approval?
The repayment is usually counted as monthly debt, which lowers the price you qualify for. The funds themselves are acceptable as long as they are documented.