Reply to Explain to me why it's stupid to take $$ from a 401K for a down payment

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[quote=Anonymous][quote=Anonymous]If you take a loan from your 401(k) there is no tax penalty.

We took a 401(k) loan for a portion of our down payment and paid it back over 5 years at 4% interest. The downsides are (1) the money is not in your pool of retirement money, which maybe is making more than 4%, (2) your paychecks are smaller because your employer deducts the monthly payment, (3) if you change jobs, you have to pay back the loan.

I don't consider the 4% interest a downside since the interest is being earned by your retirement account. It's like taking money from one pocket and putting it into the other.

We decided to do it, but kept the total loan on the smaller side.[/quote]

THIS.  We took out 15k, and will repay at 4% interest in 5 years.  We think it works well for us because it allowed to buy a house in a great neighborhood with excellent schools that we would not otherwise be able to afford without the 401k loan.  However, we fully intend to pay ourselves back in 5 years.  [/quote]

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