Can You Use Your Retirement Savings to Buy Your First Home?

For many first-time homebuyers, the biggest obstacle isn't qualifying for a mortgage.

It's saving enough money for the down payment and closing costs.

As home prices have increased across the country, many buyers have asked the same question:

"Can I use money from my retirement account to buy my first home?"

The answer is yes in some situations.

Current IRS rules already allow eligible first-time homebuyers to withdraw money from an Individual Retirement Account (IRA) without paying the typical early withdrawal penalty. Even more interesting, proposed federal legislation could dramatically increase how much buyers are allowed to withdraw.

If passed, it could become one of the biggest changes to first-time homebuyer financing in decades.

As a North Carolina REALTOR® working with first-time buyers throughout Raleigh, Cary, Apex, Durham, Holly Springs, Wake Forest, and the Triangle, I believe buyers should understand every available strategy not because every strategy is right for everyone, but because informed buyers make better financial decisions.

Can First-Time Homebuyers Withdraw Money From an IRA?

Under current federal law, eligible first-time homebuyers can withdraw up to $10,000 from a traditional or Roth IRA without paying the 10% early withdrawal penalty when the money is used toward purchasing a first home.

Keep in mind:

• The withdrawal may still be taxable depending on the type of IRA and your individual tax situation.
• IRS eligibility rules apply.
• This exemption only removes the early withdrawal penalty it does not automatically eliminate income taxes.

Because retirement and tax planning are highly personal, buyers should always consult a qualified CPA or financial advisor before making any retirement withdrawals.

The Proposed $50,000 First-Time Homebuyer Rule

Congress is currently considering the Uplifting First-Time Homebuyers Act, which would increase the penalty-free IRA withdrawal limit from $10,000 to $50,000 for eligible first-time buyers.

If enacted, this proposal would better reflect today's housing market.

When the original $10,000 limit became law nearly 30 years ago:

• The median U.S. home price was approximately $129,000
• A $10,000 withdrawal represented nearly 8% of a home's value

Today:

• The median existing home price is above $440,000
• That same $10,000 now covers only about 2% of a typical home's purchase price

In other words, while home prices have increased dramatically, the withdrawal limit has remained unchanged.

Why This Conversation Matters

According to Federal Reserve data, the majority of household wealth is concentrated in just two assets:

• Retirement accounts
• Home equity

Together, these represent roughly two-thirds of the average household's total assets.

That raises an interesting financial question:

Is keeping every dollar in retirement always the best long-term wealth-building strategy?

Or...

Could using part of those retirement savings to purchase a home actually create greater long-term net worth?

The answer depends on your financial situation but understanding how leverage works in real estate helps explain why many economists are having this conversation.

Homeownership Builds Wealth Differently Than Investing Alone

Let's compare two simplified examples.

Scenario 1: Keep $50,000 Invested

Imagine leaving $50,000 invested in a broad stock market index fund earning an average annual return of 10%.

After ten years:

• Initial investment: $50,000
• Estimated value: Approximately $129,700
• Total investment gain: About $79,700

Historically, long-term investing has been an excellent wealth-building strategy.

Scenario 2: Use $50,000 Toward a Home Purchase

Instead of keeping the money invested, imagine using the same $50,000 as the down payment on a $400,000 home.

Here's where real estate works differently.

Your investment isn't appreciating on only the $50,000.

It's appreciating on the entire $400,000 property because mortgage financing allows you to control a much larger asset.

That's called financial leverage, and it's one of the reasons homeownership has historically built substantial wealth for many Americans.

National Home Equity Growth Has Been Remarkable

According to research from the National Association of REALTORS®, the typical U.S. homeowner accumulated approximately:

$232,300 in home equity over the past 10 years.

That figure significantly exceeds the hypothetical investment gain from simply leaving $50,000 invested in the stock market.

Of course, every market performs differently, and past performance never guarantees future appreciation.

But historically, homeownership has proven to be a powerful wealth-building vehicle.

What Happened in Raleigh and Charlotte?

North Carolina continues to be one of the country's strongest long-term housing markets.

Over the past decade:

• Charlotte homeowners gained approximately $268,000 in home equity
• Raleigh homeowners gained approximately $252,000 in home equity

These gains placed both metros among the nation's strongest performing housing markets not because they were the most expensive, but because of sustained population growth, job creation, and housing demand.

For buyers relocating to the Triangle, these numbers highlight why many people view homeownership as more than simply securing a place to live.

It can also become a long-term financial asset.

Why Home Equity Can Outperform Expectations

Homeownership creates wealth through multiple channels:

Appreciation

Historically, home values have tended to increase over long periods.

Principal Paydown

Every mortgage payment gradually reduces your loan balance, increasing your ownership stake.

Leverage

A relatively small down payment gives you ownership of a much larger appreciating asset.

Forced Savings

Unlike renting, a portion of each mortgage payment builds equity over time.

Does That Mean Everyone Should Use Retirement Savings?

Not necessarily.

Retirement savings exist for an important reason.

Using retirement funds means giving up future tax-advantaged growth, and withdrawing too much could impact your long-term retirement goals.

Before considering this strategy, ask yourself:

• Do I have an emergency fund?
• Will I still be financially secure after the withdrawal?
• Can I comfortably afford the mortgage?
• Am I planning to stay in the home long enough to benefit from appreciation?
• Have I spoken with a CPA or financial advisor?

There is no universal answer.

The best decision depends on your overall financial picture.

What First-Time Buyers in North Carolina Should Consider

Every buyer's situation is different.

Some buyers may qualify for:

• Down payment assistance programs
• First-time homebuyer grants
• Employer homeownership benefits
• Seller concessions
• Lower down payment loan programs
• Gift funds from family members
• VA, FHA, USDA, or conventional financing options

Retirement savings should simply be one part of the broader financial conversation not necessarily the first option.

Frequently Asked Questions

Can I use my IRA for a down payment?

Yes. Under current law, eligible first-time buyers may withdraw up to $10,000 from an IRA without the 10% early withdrawal penalty, subject to IRS rules and possible taxes.

Is the $50,000 withdrawal rule law yet?

No. As of July 2026, the Uplifting First-Time Homebuyers Act has been proposed but has not become law.

Is buying a home better than investing?

Neither is universally better. Stocks and real estate build wealth differently, and the right choice depends on your financial goals, timeline, risk tolerance, and overall financial plan.

Should I use retirement savings to buy a home?

Possibly but only after reviewing your complete financial situation with qualified financial and tax professionals.

Final Thoughts

Buying your first home is one of the biggest financial decisions you'll ever make.

Understanding all of your financing options including retirement account rules, down payment assistance, loan programs, and creative financing strategies can help you make a more informed decision.

While retirement savings should never be used without careful planning, the conversation highlights an important reality:

For many Americans, homeownership has historically been one of the most effective ways to build long-term wealth.

If you're thinking about buying your first home in Raleigh, Cary, Apex, Durham, Holly Springs, Wake Forest, or anywhere in the Triangle, I'd be happy to walk you through your options, explain the home-buying process, and help you build a strategy that fits your financial goals.

No pressure. Just honest guidance so you can make the decision that's right for you.

Key Takeaways

• Eligible first-time buyers can currently withdraw up to $10,000 from an IRA without the early withdrawal penalty.
• Proposed legislation would increase that limit to $50,000, though it has not yet been enacted.
• Homeownership builds wealth through appreciation, mortgage principal reduction, and leverage.
• Raleigh and Charlotte have experienced some of the nation's strongest home equity growth over the past decade.
• Using retirement savings should be evaluated alongside other financing options and discussed with tax and financial professionals.