by Tracey Barrett
July 2025

If you’re looking to move into a new home but need the equity from your current property to make it happen, you’re not alone. Many homeowners find themselves in a tricky situation: they want to buy before they sell, but accessing enough cash for a down payment is challenging. One creative solution? Leveraging your 401(k) or retirement account to bridge the gap—buy the new home, move in, and then sell your current property to repay the loan.

Yes, it’s possible—and under the right conditions, this approach can help you transition smoothly without a sale of home contingency on the new home or rushed sale of the current home. But it’s not without risks. Here’s what to consider.

✅ How This Strategy Can Work in Your Favor

1. Access to Funds Without Waiting for Your Home to Sell

Many homeowners have substantial equity in their current home, but that equity is not accessible until the home is sold. This can present a problem if you’ve found the perfect new home but do not have liquid cash for a down payment.
By borrowing from your 401(k), you can unlock a portion of funds to move forward with your purchase now. For example, if you have $300,000 in your 401(k), your plan may allow you to borrow up to $50,000. This can be enough for a 10–20% down payment on a new home, depending on your price range, and helps you avoid losing the home to another buyer while you wait for your current one to sell.

2. You Can Move First, Then Prepare Your Old Home for Sale

Trying to buy and sell at the same time can be stressful and inconvenient—especially if you are living in the home you are trying to show. With this strategy, you can buy your next home, move in comfortably, and then focus on preparing your old home for sale without the pressure of coordinating two closings.
For instance, once you are out, you can repaint, refinish floors, make necessary repairs, and stage the home properly—all without juggling showings, pets, kids, or daily life. This can help you attract better offers and potentially sell at a higher price.

3. Repay Your 401(k) With Home Sale Proceeds

One of the biggest advantages of using a 401(k) loan for this strategy is that it is temporary. Once your first home sells, you can use the proceeds to pay off the 401(k) loan in full—often within a few months.
Let is say you owe $40,000 on your 401(k) loan and net $150,000 from your home sale—you can pay off the loan immediately and still have plenty left to reinvest, recast the principle on the new loan, save, or use for improvements in your new home. This quick repayment minimizes the long-term effect on your retirement savings and helps keep your financial picture healthy.

4. You are Paying Yourself Back

The interest you pay on the loan goes right back into your retirement account—essentially, you are borrowing from and repaying yourself. For example, if you borrow $40,000 at 6% interest over five years, the interest payments (around $1,300 over the life of the loan) are not going to a lender—they are going right back into your retirement savings.

⚠️ What to Watch Out For

1. Lost Investment Growth
Money borrowed from your 401(k) will not be growing with the market while it is out. Even if you pay it back quickly, there is still an opportunity cost.

2. Risk If You Change Jobs
If you leave your job before repaying the loan, the full balance may be due within 60 days—or it could be treated as a withdrawal and taxed, with an additional 10% penalty if you are under 59½.

3. Repayment Timing Matters
You will need to plan the timing of your home sale carefully. If your home sits on the market longer than expected, the delay in repaying the 401(k) could increase risk or tax consequences.

4. Double Taxation on Repayments
Since repayments are made with after-tax dollars—and taxed again at withdrawal in retirement—you could pay taxes on the same money twice.

Final Thoughts

If structured correctly, this strategy allows homeowners to make a smooth transition into a new home while avoiding the stress of selling under pressure. By using a 401(k) loan or retirement account loan as temporary bridge financing, you gain flexibility in both timing and presentation of your existing home sale—maximizing your potential return.

Disclaimer:
This article is for informational purposes only and does not constitute financial, legal, or tax advice. Always consult with your financial advisor, accountant, and mortgage lender before using retirement funds toward a home purchase. Working with professionals ensures this strategy fits your financial picture and is executed properly within all applicable laws and plan rules.