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Dipping into your 401(k)
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May 18, 2000: 9:34 a.m. ET
Your retirement savings may look attractive for a house down payment
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NEW YORK (CNNfn) - You're ready to buy your first house but don't have a lot of options for where to draw the down payment money from. You're thinking about dipping into your 401(k). Is this a good idea?
In response to a reader's question, Scott M. Kahan, a certified financial planner from New York and a member of the Financial Planning Association, discussed the ramifications of borrowing from your retirement savings, as well as other loan alternatives to consider.
Ask the experts a question
I am 30 years old and want to buy a very modest-sized house. I can only come up with the down payment by dipping into most of my 401(k). I still plan on making 401(k) contributions bimonthly after the house purchase. Should I take the 401(k) money for the down payment?
If this is the only money available to you it can be a viable option. There are a few rules that apply that you need to be aware of.
First, the maximum loan you can take is 50 percent of your total account balance, or $50,000, whichever is less.
Second, if you leave your job before you pay back the loan, you will need to pay it off or be subject to tax and a 10 percent penalty for an early distribution. So if you plan on leaving your job in the near future, this could be a problem. Since you plan to continue contributing and you will be paying off the loan while at the same time paying a mortgage, do some number crunching to make sure that that this is all affordable.
As an alternative method, have you looked at family loans that may be more flexible with payment schedules? And finally, with interest rates rising, you may want to consider an adjustable mortgage. This will keep the payments lower in the first year or two and allow you to pay off the loan faster. 
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