Borrow against my 401K for a down payment?

Hello everyone,

I live in San Diego, CA where the median home price has dropped approximately 20% in the last year, so it seems like a really good time for me to become a first time home buyer. :) However, I don't yet have much money saved up. Is it a bad idea to borrow from my 401K for a down payment? I'm only 26 years old, so theoretically I have many years to pay myself back before retirement.

I have no credit card debt and I have a good credit score. I do have a car loan that I still owe about $8,000 on. I have approximately $20,000 in my 401K, but with the crummy stock market, my 401K plan LOST 8.52% during the last quarter. I have about $4,000 in a savings account earning 3.25% interest rate.

I haven't checked the details of my 401K plan yet, but I know that many plans let you borrow up to half of the amount in your plan. Is it a bad idea for me to borrow from my 401K to make a down payment on a condo or house while the prices are down?

Thanks for your feedback.

It's always a bad idea to rob from your future to pay for your present. The rule of thumb is that if you have to borrow from your retirement to buy a home, then you can't afford a home.

That said -- is $20k even enough for a down payment in San Diego? Mortgage lenders are going back to being VERY strict about 20% down payments, etc. If it's not even enough to use, there's no point in even considering it.