Can You Use a Roth IRA to Buy a House?

One of the biggest challenges of buying a home is saving up for a down payment. In late 2024, the median sale price of houses in the United States was $419,200. A first-time homebuyer putting nine percent down (the average down payment size in 2025) would need to have $38,000 on hand.   

One option to increase your down payment size is to tap into your Roth IRA. A Roth IRA uses after-tax dollars to help people save. Most people use Roth IRAs to save for retirement, but there are options for tapping into your savings to help buy a house. 

This guide will dive into the specific conditions needed to buy a house with funds from your Roth IRA. Learn more about withdrawal rules, tax implications, and the benefits of using this money. With clear insights, you can make informed financial decisions that help in the long run.

How Does Using a Roth IRA for a Home Purchase Work?

Retirement accounts are often designed so people don’t touch the money unless there is an emergency. Retirement savings will grow over time through a mixture of regular deposits to the account and interest accrued from strategic investments. To discourage people from withdrawing funds, many retirement accounts come with strict penalties until you reach a certain age (59 ½ for Roth IRAs). 

However, there are exceptions to these rules. You can withdraw funds without penalty if you are a first-time homebuyer trying to make a down payment on a house. The Internal Revenue Service (IRS) defines a first-time homebuyer as, “an individual who, with his or her spouse if married, has not owned any other principal residence for three years prior to the date of purchase of the new principal residence.” 

First-time homebuyers can withdraw up to $10,000 in earnings for a home purchase. These contributions can be withdrawn at any time without penalty or taxes.

Depending on your budget, the $10,000 withdrawal can be used to cover all or some of your down payment, making homeownership more affordable.

Rules and Requirements for Withdrawing Roth IRA Funds

While using IRA funds to buy a house could be a good option if you have ample money saved, there are some restrictions for using money from these accounts. Here are a few requirements you need to follow if you don’t want to pay taxes when you use your IRS money. 

• The Roth IRA must be at least five years old. You cannot withdraw funds until it has been at least five years since your first contribution. This is known as the Five-Year Rule. 
• The funds must be used for a qualifying home purchase. This means you need to be a first-time homebuyer and must use the money for a primary residence. You cannot use your Roth IRA funds to buy a rental property, so you can start investing in real estate. 
• The $10,000 withdrawal is per person. This means couples can withdraw up to $20,000.
• The withdrawal is capped at $10,000. You cannot withdraw an additional $10,000 if you qualify for first-time homebuyer programs in the future. 

Contact a finance professional or a real estate agent if you aren’t sure whether you can use your retirement funds to cover a down payment on a house. They can confirm whether you qualify to use your Roth IRA and whether or not you will need to pay income tax when you use the money.

Pros and Cons of Using a Roth IRA to Buy a Home

There are benefits and drawbacks of using Roth IRA funds to buy real estate. You are hindering your ability to save for retirement in the short run, but have the potential to grow your wealth and increase your financial stability in the long run. Here are a few pros and cons to consider as you evaluate your Roth IRA.

Pros of Using a Roth IRA for a Down Payment

• Enjoy a tax-free withdrawal of contributions. There is no penalty for withdrawing funds you contributed to your retirement account. This is a rare opportunity to get the cash you previously saved without having to pay income tax on it. 
• There is a $10,000 exemption on earnings. This is a significant amount of money you can use for your down payment. This could completely cover the down payment or allow you to put even more money down. 
• There is even more value if you are buying a home with a partner. You can pull $20,000 total if you are your spouse have separate Roth IRA accounts. This is a great way for both parties to contribute to the down payment.
• The money allows for flexible use. You don’t have to use the funds for a down payment. You can use the money to cover closing costs, moving expenses, or construction needs to make repairs on your new property.
• No loan repayment is required. Unlike 401(k) loans, there is no need to pay back the amount withdrawn from a Roth IRA. The money is yours to use.

Cons of Using This First-Time Homebuyer Option

• The withdrawal amount is limited. The $10,000 cap on earnings may not be enough in high-cost markets. Even if you only need a 3% down payment for an FHA loan, the $10,000 withdrawal might only cover part of your costs. 
• You could potentially lose your retirement growth. Withdrawing funds means losing potential investment gains. It could take several years to build back your retirement savings. There’s also no guarantee that you will have money in the future to save for retirement. 
• You have to follow the Five-Year Rule. If your Roth IRA savings account is too young, you will have to pay taxes on this withdrawal. You may have to delay your home purchase to hit the five-year mark if you want to access these funds. 
• This option is not ideal for repeat buyers. The $10,000 exemption applies only to first-time homebuyers. You cannot access your Roth or traditional IRA money if you are buying a rental property or upgrading to a larger home.

Alternatives to Fund a Home Purchase Without a Roth IRA

You aren’t required to use your Roth IRA to purchase a home. You can avoid paying income tax and enter the real estate market with funds from other channels. Here are a few alternatives to IRA withdrawals that can help you get the money you need.  

Saving for a Larger Down Payment

One option is to wait to enter the real estate market until you have a larger down payment. Consider how much you can save each month and how long it will take to get the down payment you need. For example, if you are trying to save $10,000 and can cut costs to save $500 per month, then your down payment goals are just under two years away. 

Saving money isn’t always easy, so you may need to be aggressive in how you reduce expenses. Look for unnecessary costs that you can live without (like reducing your restaurant dining budget) and identify opportunities to increase your income. You may be able to make extra money with a side hustle that allows you to save for a down payment faster than you expect.

First-Time Homebuyer Programs

If saving for a larger down payment isn’t an option, look into financing options that don’t require a lot of upfront money. Here are a few loans to explore that could allow you to buy a house even if you don’t have a lot saved. 

• FHA Loans: mortgages from the Federal Housing Administration (FHA) require a minimum down payment of 3.5%. If the median home price in your area is $400,000, then you only need $14,000 to qualify.    
• VA Loans: loans from the Department of Veterans Affairs do not require any down payment. If you are an active or veteran service member who qualifies for one of these loans, you might not need to pull from your Roth IRA. 
• USDA Loans: The Department of Agriculture promotes rural development with home loans where no down payment is required. This is a great option if you want to live in the country. Check the USDA eligibility map to explore rural regions near you. 

Even if you aren’t a first-time homebuyer, you may be able to take advantage of these loans. VA loans can be secured multiple times, along with USDA loans. Explore all of your options before pulling from your Roth or traditional IRA. 

401(k) Loan or Withdrawal

Not everyone has a Roth or traditional IRA. It’s more common in some industries to have a 401(k), which is often provided by an employer. While you can withdraw funds from your 401(k) at any time, you may have to pay taxes on the money. This means you will get less than you expect once you pay the government. 

Pulling from your 401(k) to pay for your primary residence is considered a hardship withdrawal, but it requires you to pay income tax. If you access this money before you are 59 ½, you will need to pay a 10% penalty on the withdrawal. This money also counts as income, which could put you into a higher tax bracket and increase what you owe to the government as a whole. 

Along with the immediate fees that come with this option, there are long-term drawbacks. As with pulling money from your traditional IRA, you will lose retirement savings. It could take years to grow their accounts back and make it harder for you to enter your golden years as you age. 

Gifted Funds from Family

Many loan programs allow gifted down payment funds, so you may be able to talk to your family about receiving money. Money for a down payment is a significant gift and a large ask for many households, so talk to your loved ones about the benefits of doing this. 

You may be able to reach an agreement where the money is part of your inheritance that you receive early. When your parents pass away, you will receive your inheritance minus the gift money received now. This is usually a good option if the inheritance will be divided across multiple siblings.  

Keep in mind that your family members will still need to write a letter stating the money was a gift to your mortgage lender so they do not count it toward your debt. Having this letter at the start of the home search can streamline your loan approval process. Gift money can help you establish your wealth through real estate while also protecting your retirement funds. 

Is Using a Roth IRA for a Home Purchase a Good Idea?

A Roth IRA can provide a substantial down payment in some cases, but could be considered taxable income if you aren’t careful. It’s important to decide whether using your retirement savings to buy a house is the best call based on your current finances and ability to save in the near future. 

Using a Roth IRA can make sense if other savings are limited, but it shouldn’t be the first option. You never know if you will have enough money in the future to replenish your savings account and prepare for retirement. It may be better to build up other personal funds in the short term than to hope you have enough money to contribute to retirement once you buy a house. 

Evaluate the long-term financial impact of losing retirement growth compared to your immediate housing needs. While buying a house can help you grow your wealth because you are paying off your home, it also comes with other costs. You will want additional savings in case you need to make immediate repairs and upgrades, like fixing roof damage or getting your HVAC system working again in the middle of summer. If you need to rely on your Roth IRA to fund your home purchase, you might not have enough on hand to cover unwanted costs.  

Avoid using your entire Roth IRA to fund your home purchase and make sure you keep a nest egg available. This can protect your long-term retirement savings while keeping cash on hand in case you have unexpected (and unwanted) home repairs.

Know Your Roth IRA Options When Investing in Real Estate

Real estate is an investment, whether you are buying your first house or purchasing a rental property. It’s important to consider how much you are putting in versus what you expect coming out. If this is your first home purchase, you may intend to use your Roth IRA to help with your down payment and reduce your monthly mortgage costs. While this is a good option for many buyers, it isn’t right for everyone.  

Talk to a financial advisor, tax advisor, or real estate agent to understand the tax implications and withdrawal rules of using your Roth IRA money. Consider the benefits of using the $10,000 against the drawbacks of having limited retirement funds. Talking to these professionals can also help you identify other funding options that could prevent you from paying income tax on your money. They can give you the information you need to make the best possible decisions.

Use FastExpert to find a real estate professional in your area. You can interview multiple Realtors to find a good fit for your needs. You can also ask about funding options to explore creative solutions that promote financial stability. Try FastExpert today and find someone who makes you feel confident in your decisions throughout the buying process.