Does anyone know about 401K loans?

I wouldn't pull money out of a 401k. The amount of taxes you're going to have pay come April will be insane, especially on such a large amount. You also don't have to put a down payment on a house when you buy (I didn't). It's preferred but not generally required, unless your credit history warrants it. 20k would be over 10% down (I'm assuming), if you absolutely needed to put money down to buy I would imagine you could get away with much less.

We took one out early in our marriage and I can't remember why.  We paid it back quickly and it worked out okay for us. 

Borrowing from a 401K is different from taking a disbursement from one.  It isn't included as income and you don't pay taxes on them.  However, you will be using after tax income to pay it back and then when you do take a disbursement in retirement, you'll be paying taxes again.  So you will be getting taxed twice on that money.

The interest you pay back on the loan is interest you are paying to yourself--not to a bank.  So that is a positive aspect of it.

The other problem is that if you lose your job, the money becomes immediately due and most people don't have the money to pay it back at that point.

The better option is to start putting the money away that you would use to pay back the loan and put off purchasing the house until then.  

I think it's a really bad idea.  I know someone who did that same thing for a downpayment, and then sold the house at a loss. And now she has no retirement!

I've done it. It was a mistake. Well, okay not a mistake because we needed the money for lawyers but it was an awful time.

The money you remove is paid back in payments with a slight interest rate that you are paying back to yourself. You lose the benefits of compounding interest so you do lose ground in your 401k, just not as much. If you work for the employer that manages the 401k, they'll withdraw the payments out of your paycheck. You can continue to contribute to the 401k if you can afford it. My employer had the option to "call the loan" anytime which always hung over my head. The balance of the loan would be called immediately if I resigned or got laid off or fired. That alone changed the relationship I had with my employer. It was always in the back of my mind that there was no way I could afford to pay off $10,000+ immediately if I got laid off.

There is a limit of how much you can borrow. It is a percentage of the amount in your account. You can't borrow the entire balance.

A few things to keep in mind:

~ You can't borrow your way out of debt - or borrow your way to wealth.

~ If you borrow against your 401k for a down payment you'll have that loan repayment, still contribute to the 401k (or suspend contributions in which case you'll lose that money) plus you'll have a new house payment and all the associated expenses. Having just purchased a house, I can assure you that there ARE expenses.

~ If you can't make the debt payments, the money becomes immediately taxable - with penalties.

I agree that home ownership is fantastic. You truly should buy a house soon. However, I encourage you to look for another way to make the down payment. Patience is key. Once you're out of school, you can save up lots of money fast.

I know everyone responded but I just wanted to share.  I did this with an old 401K - exactly 20K - liquidated it.  Was great for the down payment Except we got taxed so Big Time come tax time.  I would never do that again!!!!

If you already have a 401k compounding interest, I see nothing wrong with suspending your contributions in order to save up for a house. That would be a better option than borrowing from your account.