There are circumstances where borrowing from a 401k to achieve a higher down payment makes a lot of sense, but I'm not sure yours is one of them. I don't really understand what you are looking to accomplish, and at the least, it will introduce another complication into your finances with little apparent gain.

borrowing money out of 401k is 99% bad idea but you can recast as other have stated. just make sure your loan company allows that in writing.

We took out $40K at the end of 2020 to buy during the pandemic. We paid it back within a year. Our house has gone up in value by $550K since then. To drill down on the one year decision, I was very nervous about pulling the money out and missing returns and I was working in television and my contract was up 13 months from when we bought and I didn't want to be in a position where if I didn't resign we had to pay back almost half the loan in one go. Our income has gone up by almost $550K since then so sometimes I'm frustrated we didn't try harder to get a larger home but then I remember we really stretched for what we were making at the time and I had a good friend whose parents' house had been foreclosed on a few years prior so the idea of overbuying was way less appealing than underbuying given that history. It was also a brutal year. We couldn't afford to buy any new furniture and when we had to put $1000 down for our daughter's preschool deposit we could barely make it work. We didn't have money for a $130 museum membership at one point. We had a water heater burst and then had a mouse problem and having Orkin outfit a crawl space in our basement to stop mice from getting in for $2K nearly broke us. So my advice would be don't be so aggressive in your timeline to pay yourself back that everything that might come up with your house or with your kids becomes a nightmare because you are so strapped financially.

It's a bad idea. Buy a house you can afford today instead of borrowing from your future self.

My husband did a 50k TSP loan @3.75% and cleaned out all of our emergency savings in order to be able to pay our house fully cash. Saved thousands in loan origination fees right off the bat, plus the 6% interest the bank wanted to charge (were originally going to finance 100k). Luckily no emergencies the first several months and we were easily able to replenish savings quickly without a mortgage. No regrets!

That $100k can become $500k easily by 2032 if invested correctly. You are choosing to have couple of years off instead? You are also choosing to take out yet another loan, and you already have a high payment.
Don't touch the retirement. I wouldn't even buy a house unless you are willing to get a second job. Seems like there are two of you. Both of you need to get a second job and pay extra to get the years down to 27.
Also, the down payment would grow faster in the market. You are about to put it into a house where it won't grow, it will be stuck there. Your heart wants a house over long term riches and you are choosing to pay some $7k interest for every $100k you borrowed.
Get a roommate and a second job. Don't touch the retirement.

Before you do this, look to other ways you overspend? Do you have two car payments? If so, get rid of one or both. Do you pay someone to do your lawn? Get rid of that. Do you have every streaming service? Get rid of all but one. Do you have a cleaner come every week? Go to once every two weeks.

I’d never touch my retirement account to fund something better today unless it was necessary for my kids education or health care. I’m pretty conservative.

Take the 401k loan. Don't take the loan for 10 years pay it off in 5 or 6. I did this to buy a bigger house and do not regret it. I'm assuming you are in your 30s to mid 40s and have plenty of time before retirement.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you can "aggressively pay yourself back" for the 401k loan, just do that in advance a save a bigger downpayment in the first place. Nobody wants to have to wait any more.

OP here, yes I was expecting people to say this but I don’t think it’s unreasonable to not want to wait for a house because it impacts your lifestyle significantly and playing the waiting game has only hurt people in the past 10 years.

I wasn’t aware of the recasting option. If you can do it with little to no fees I think this would be a good choice. I thought my only option would be a complete refinance which is heavy on fees

Yes, heaven forbid your lack of money “impact your lifestyle” temporarily.

I barely squeaked by purchasing a house right before COVID. Was an amazing choice. There’s nothing wrong with rushing to get on the housing ladder.

My husband took a 401k loan to buy our house and it worked out fine. But be aware that if you leave your company you need to pay back the full loan immediately.