Using a 401(k) for a down payment can work, but where the money comes from, when it is available, and how well it is documented matter as much as the amount. The same is true for IRA withdrawals, stock sales, and cryptocurrency. Before you borrow, withdraw, sell, or convert anything, talk with your plan administrator and a tax professional, and talk with a mortgage broker early enough to match the plan to your Texas contract dates.
TL;DR
- Vested 401(k) and IRA funds, stocks, mutual funds, and converted crypto can all be acceptable sources of funds when they are verified and documented.
- A 401(k) loan is only possible if your plan offers it, and the IRS caps it at the lesser of $50,000 or the greater of $10,000 or 50% of your vested balance.
- The IRS $10,000 first-home exception to the 10% additional tax applies to IRAs, not 401(k) plans, and regular income tax may still apply.
- For conventional loans that follow Fannie Mae’s guidelines, crypto must be converted to U.S. dollars and verified before closing, and it cannot be used for earnest money.
- Start early. A slow withdrawal or an unexplained deposit can run into the Buyer Approval deadline in a Texas financing addendum.
Why down payment sources are in the spotlight
New national numbers show how many buyers piece a down payment together from more than one account. The National Association of REALTORS® 2026 Profile of Home Buyers and Sellers, released November 5, 2026, found that first-time buyers made up 22% of purchases, with a median age of 40 and a median down payment of 9%. Personal savings were the top source (62%). But 30% of first-time buyers used financial assets such as a 401(k), stocks, or cryptocurrency; 25% used gifts or loans from family and friends; and a record 10% used an inheritance. The survey covers primary-residence purchases from July 2025 through June 2026.
Those numbers show why the question is bigger than “Do I have enough?” The next questions are: Can I prove where the money came from? When will it be in my account? Does it fit the loan program?
A retirement account can look strong on a statement and still have withdrawal limits. A stock account can drop before you sell. Crypto needs a documented conversion to U.S. dollars. A family gift needs its own paper trail.
If you are still building a plan, our guide to Texas first-time homebuyer programs covers down payment assistance options. The Texas Mortgage Pros is a mortgage broker, and we review each file based on its facts, including the type of asset, the loan program, the paperwork, and your purchase timeline.
The money has to be yours, verified, and traceable
A usable down payment source needs three things: you own it, you can get to it, and there is a clear paper trail.
Start with complete, recent statements for every account involved. They should show your name, the institution, the balance, and the transaction history. When money moves from one of your accounts to another, keep the statements for both. A transfer that clearly leaves one verified account and arrives in another is much easier to review than a deposit with no visible source.
For conventional loans that follow Fannie Mae’s guidelines, Selling Guide B3-4.2-02 defines a large deposit as a single deposit of more than 50% of your total monthly qualifying income. On a purchase, if you need those funds to close, you must document the source. Transfers between verified accounts that are printed on the statement usually need nothing more. If a deposit can’t be sourced, that amount is subtracted from the funds that can be counted.
Avoid depositing cash you have kept at home. It may be your money, but proving where it came from is hard. Also avoid moving money back and forth between accounts without a reason or a record.
Keep a simple folder with:
- Recent statements for each account involved.
- Your 401(k) loan or withdrawal paperwork, if you use one.
- Trade confirmations and proof that sale proceeds reached your bank.
- Crypto exchange records, the conversion record, and the bank statement showing the deposit.
- Gift paperwork, if a family member is helping.
- A record of every transfer into the account that will send funds to the title company.
Using a 401(k) for a down payment: loan vs. hardship withdrawal
A 401(k) may offer two very different ways to access funds: a plan loan or a hardship distribution.
A plan loan is often the first option for many buyers. According to the IRS retirement plan loan FAQs, a plan may offer loans but does not have to. The most you can borrow is the lesser of $50,000 or the greater of $10,000 or 50% of your vested balance. Payments must be made in substantially equal amounts at least quarterly, and the loan is generally repaid within five years. A loan used to buy your principal residence may be repaid over a longer period if the plan allows it. A plan may also require your spouse’s consent.
Ask your plan administrator what the plan allows, what paperwork it needs, how long funding takes, and what happens to the loan if you leave your job. A plan loan that is not repaid under its terms can be treated as a taxable distribution.
A hardship distribution is different. The IRS says a plan may allow hardship distributions but does not have to. Costs directly related to buying your principal residence (not mortgage payments) are one of the safe-harbor reasons. The amount is limited to what you need, which can include the taxes the distribution causes. A hardship distribution is generally taxable, and if you are under 59½, it may also be subject to the 10% additional tax. The $10,000 first-home exception discussed below applies to IRAs, not to 401(k) plans.
Neither option is free. A plan loan takes money out of your investments while you repay it. A hardship distribution permanently reduces your retirement savings and can create a tax bill.
On the mortgage side, Fannie Mae’s retirement account guidance says vested funds in an IRA, SEP, Keogh, or 401(k) can be used for the down payment, closing costs, and reserves. Ownership must be verified, and the account must be vested and allow withdrawals regardless of your current employment status. If the account holds stocks, bonds, or mutual funds, the stock rules below also apply.
Fannie Mae Selling Guide B3-4.3-15 covers money borrowed against your own assets, including a 401(k). Those funds can be used for the down payment, closing costs, and reserves. When the loan is secured by your own financial assets, its monthly payment does not have to be counted as long-term debt under that guide. If the same account also counts toward reserves, reduce its value by the amount borrowed plus fees, and document the loan terms and the transfer of funds.
FHA, VA, and other programs have their own asset rules. Ask your broker which rules apply before you choose a 401(k) loan or withdrawal.
IRA and Roth IRA withdrawals for a first home
An IRA works differently from a 401(k). The IRS does not allow loans from IRAs, SEP IRAs, or SIMPLE IRAs, so “borrowing from your IRA” isn’t an option like a 401(k) loan.
A withdrawal may still work, but the tax result matters. IRS Topic 557 explains that IRA distributions taken before age 59½ generally face a 10% additional tax unless an exception applies. One exception covers up to $10,000 used for a qualified first-time home purchase.
The details, from IRS Publication 590-B:
- The $10,000 is a lifetime limit, not a yearly amount.
- You must use the money for qualified acquisition costs within 120 days of receiving it.
- A “first-time homebuyer” generally means you had no ownership interest in a main home during the two years ending on the date you enter a binding contract to buy the home. If you are married, your spouse must meet that test too.
- The home can be for you, your spouse, or your or your spouse’s child, grandchild, parent, or other ancestor.
- If both spouses are first-time homebuyers, each may use up to $10,000 without the 10% additional tax.
An exception to the 10% additional tax is not the same as a tax-free withdrawal. Traditional IRA money may still be subject to regular income tax. Roth IRAs follow separate rules, and a first-home distribution of up to $10,000 can be a qualified, tax-free Roth distribution if the five-year rule is met.
Texas has one helpful difference. Article VIII, Section 24-a of the Texas Constitution bars a state tax on individuals’ net incomes, so for a Texas resident, a withdrawal or an investment sale generally raises federal tax questions, not state income tax questions. That does not replace personal tax advice. Talk with a tax professional before you withdraw money.
Stocks, mutual funds, and stock options
Stocks, bonds, and mutual funds can be a solid source of funds, but their value can change before closing. The balance on today’s statement may not be what you have after a market drop, fees, or a margin loan.
Fannie Mae Selling Guide B3-4.3-01 allows vested stocks, government bonds, and mutual funds when their value can be verified. Value comes from the most recent monthly or quarterly statement, minus any margin balance. Vested stock options can be valued from a statement. Non-vested options can’t be used.
There is also a cushion rule. If the verified value is at least 20% more than the money you need for the down payment and closing costs, you don’t need to prove you actually received the sale proceeds. If it is less than that, you will need to document the sale and the deposit. For reserves, the full value can count without selling.
That is a reason to start early. If you need to sell, don’t wait until the last days before closing. The trade has to settle, the money has to move, and the records have to be available. Keep the investment statement, the trade confirmation, and the bank statement that shows the deposit.
Also think beyond the mortgage file. Selling can change your investment mix and may create capital gains. A financial advisor and a tax professional can help you weigh that. Your broker can tell you what the loan file needs.
Cryptocurrency: convert, document, then use
Crypto takes extra care because a home purchase runs on verified U.S. dollars.
Under Fannie Mae Selling Guide B3-4.1-04, virtual currency that has been exchanged into U.S. dollars can be used for the down payment, closing costs, and reserves when there is documented evidence of the exchange, the dollars are held in a U.S. or state-regulated financial institution, and the funds are verified in U.S. dollars before closing. If a large deposit came from crypto, the file must show it came from your own crypto account. Virtual currency may not be used for the earnest money deposit.
In practice, never send crypto to a title company. Convert it, move the dollars into your bank account, and keep the full record: proof that you own the crypto account, the balance, the conversion, the transaction history, and the bank deposit.
Rules in this area are getting attention. In June 2025, the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to prepare proposals for counting crypto toward reserves without converting it to dollars. As of the Fannie Mae Selling Guide published November 4, 2026, the virtual currency section still requires conversion to U.S. dollars. Check the current program guidelines, because rules can change.
Crypto also carries timing risk. A sharp price move can change what you have before you convert. If those funds are key to your purchase, plan the conversion early instead of assuming the value will hold until closing.
Timing your funds with your Texas contract
Your contract deadlines do not pause while a 401(k) distribution is processed or an investment sale settles.
Many Texas purchases that use a mortgage include the Texas Real Estate Commission’s Third Party Financing Addendum (Form 40-11). If the contract is subject to Buyer Approval and you cannot get it, you may be able to terminate within the number of days written in the form, with the written statement the form requires, and get your earnest money back. The form says Buyer Approval is deemed obtained when the loan terms are available, and you have satisfied the requirements on your assets, income, and credit history.
So pick your down payment source before you make an offer. A delayed 401(k) withdrawal, a missing trade record, or an unexplained crypto deposit can collide with that deadline. Ask your real estate agent or a Texas real estate attorney about the dates in your contract.
Use verified funds for your earnest money and option fee, and keep the receipts. Before you send closing funds, read our guide to avoiding wire fraud when buying a Texas home and confirm wire instructions by phone with your title company. Plan for more than the down payment, too. Our article on Texas closing costs covers the other cash you may need, and our guide to how much house you can afford in Texas can help you keep some savings in reserve.
Down payment from savings and investments: do’s and don’ts
Do
- Talk with your broker about where your down payment will come from before you make an offer.
- Ask your plan administrator whether a 401(k) loan or hardship distribution is available and how long it takes.
- Keep complete statements before and after every withdrawal, sale, conversion, or transfer.
- Sell investments or convert crypto early enough to document the deposit.
- Talk with a tax professional or financial advisor before you change a retirement or investment plan.
- Ask whether a family gift or an assistance program could reduce how much you take from retirement savings.
Avoid
- Depositing cash with no record of where it came from.
- Assuming your whole 401(k) balance is vested or available to withdraw.
- Using crypto for earnest money or sending crypto to the title company.
- Moving money through several accounts without keeping statements for each step.
- Waiting until a contract deadline to start a 401(k) loan, IRA withdrawal, or investment sale.
- Assuming a tax exception means there is no tax at all.
FAQ: Using a 401(k) for a down payment
Q: Can I use a 401(k) for a down payment on a Texas home?
A: Often, yes. For conventional loans that follow Fannie Mae’s guidelines, you can use vested 401(k) funds for the down payment, closing costs, and reserves when ownership, vesting, and access are verified. Your plan has to allow the loan or withdrawal you want. FHA, VA, and other programs can have different rules. Talk with your plan administrator, a tax professional, and your broker before you act.
Q: Is a 401(k) loan better than a hardship withdrawal?
A: There is no one answer. A plan loan has to be repaid and can cause problems if you change jobs. A hardship withdrawal is generally taxable and may be subject to the 10% additional tax if you are under 59½. Your plan may not offer either one. Compare the tax and retirement effects with a qualified advisor before you decide.
Q: Can I use money from selling stocks for a down payment?
A: Usually, if the account and the proceeds are documented. Depending on the account value and how much you need, the file may need proof of the sale and the deposit. Keep the investment statement, the trade confirmation, and the bank statement that shows the money arriving.
Q: Can I use cryptocurrency to buy a house in Texas?
A: For conventional loans that follow Fannie Mae’s guidelines, crypto must be converted to U.S. dollars, held at a U.S. or state-regulated financial institution, and verified before closing. It can’t be used for earnest money. Other programs can differ, so ask which rules apply to your loan.
Q: What if my funds are still moving when I apply?
A: Tell your broker right away and share the records for every step. We review each file based on its facts, including whether the source is verified, whether the money is available, and whether the timing fits your contract. Explaining a large deposit late can add pressure near a Buyer Approval or closing deadline.
Plan your down payment with a Texas mortgage broker
Where your down payment comes from can shape your whole purchase timeline. The Texas Mortgage Pros is a mortgage broker. We can help you compare home purchase loan options from the wholesale mortgage companies we work with, subject to qualification and program availability, and help you line up the paperwork for retirement funds, investments, gifts, or other assets before you move money. Buying for the first time? Start with our first-time homebuyer loans page.
Thinking about a 401(k) for a down payment? Call (877) 280-4833 before you move funds, apply online, or contact us.
Official sources
- National Association of REALTORS®: 2026 Profile of Home Buyers and Sellers news release (November 5, 2026) (linked above)
- Internal Revenue Service: Retirement plans FAQs regarding loans (linked above)
- Internal Revenue Service: Topic No. 557, Additional tax on early distributions from traditional and Roth IRAs (linked above)
- Fannie Mae Selling Guide B3-4.3-03, Retirement Accounts (linked above)
- Fannie Mae Selling Guide B3-4.3-01, Stocks, Stock Options, Bonds, and Mutual Funds (linked above)
- Fannie Mae Selling Guide B3-4.1-04, Virtual Currency (linked above)
- Fannie Mae Selling Guide B3-4.2-02, Depository Accounts, and B3-4.3-15, Borrowed Funds Secured by an Asset
- Internal Revenue Service: Retirement topics, hardship distributions; Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
- Texas Constitution, Article VIII, Section 24-a
- Texas Real Estate Commission: Third Party Financing Addendum, TREC Form 40-11
Wikipedy is not affiliated with or endorsed by the National Association of REALTORS®, the Internal Revenue Service, Fannie Mae, the Federal Housing Finance Agency, the Texas Real Estate Commission, or any retirement plan, brokerage, or cryptocurrency exchange, and this is not a government document.
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