Tapping investments for homeownership down payments

"Reports before Davos suggested that President Trump would announce an initiative to spur homeownership by allowing individuals to withdraw funds from their 401(k) accounts to make a down payment on a home purchase without incurring a10% early withdrawal penalty. Davos has come and gone, and we are now hearing reports that the President is not a fan of this approach. His comments seem to echo criticisms from some that we should not encourage individuals to withdraw money from their retirement accounts."

"In November, a National Association of Realtors Release revealed two sobering statistics. First, the typical age of first-time buyers climbed to an all-time high of 40 years. And second, the share of first-time home buyers dropped to a record low of 21%. Down payment requirements are generally the biggest barrier to entry-level ownership. For example, as the OCC has concluded, For first-time buyers, a major challenge is coming up with a down payment, which can be exacerbated by rising home prices."

"If there are concerns about depleting individuals' retirement accounts, there is a simple way to have the best of all worlds. Individuals can borrow from their 401(k) to make a down payment on a home purchase. But the rules governing this practice are too restrictive. The maximum repayment term on a 401(k) loan to make a down payment on a home is 15 years. This should be increased to 30 years (subject to a repayment requirement upon sale or refinance)."

President Trump reportedly considered allowing penalty-free 401(k) withdrawals for home down payments but later expressed opposition. Critics warn against depleting retirement savings, while proponents note homeownership builds wealth comparably to retirement plans. First-time buyer data show the typical entry age rose to 40 and the share of first-time buyers fell to 21 percent, with down payments identified as the primary barrier. A proposed compromise allows borrowing from 401(k) accounts for down payments while extending loan repayment from 15 to 30 years, with repayment upon sale or refinance and reasonable interest requirements under DOL rules.

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