Housing News

Could Your 401(k) Help You Buy a Home? Trump Administration Proposes New Down Payment Option

The Trump administration recently floated a housing proposal that would allow U.S. workers to withdraw money from their 401(k) retirement accounts to help cover a down payment on a home. The move is aimed at easing one of the biggest financial hurdles facing would-be homebuyers.

Details on how the plan would work have not yet been released.

Under current rules, most people face an I.R.S. penalty for taking early withdrawals from a retirement account. The White House plan would waive those fees if the funds were used for a down payment. This is a change officials say could assist buyers struggling with rising upfront costs.

The average down payment has climbed sharply in recent years, doubling from about $15,000 before the pandemic to roughly $30,000 in the third quarter of 2025, according to a Realtor.com analysis. It takes families about seven years to save for a down payment, twice as long as before the pandemic, according to Realtor.com.

The Trump administration says the 401(k) proposal could help bridge that growing number by allowing buyers to put existing assets to work sooner.

“Suppose that you put 10% down on a home, and then you take 10% of the equity of the home and put it as an asset in your 401(k),” White House economic advisor Kevin Hassett said Friday on Fox Business. “Then, your 401(k) will grow over time as the value of your house grows.”

By tapping retirement savings, some buyers could shorten the time it takes to save for a down payment. However, only about 54.4% of Americans have any type of retirement account, according to data from the Federal Reserve and Congressional Research Services. An even smaller share have 401(k)s.

Withdrawing retirement funds can also impact the loan process. Large withdrawals may require additional documentation to verify the source of the down payment, and reduced cash reserves may influence mortgage lending decisions.

Buyers considering this option are usually advised to discuss any retirement withdrawals early in the preapproval process to avoid delays or surprises at closing.

Housing and financial experts note that the households most squeezed by affordability pressures are also the least likely to benefit from tapping retirement savings.

Lower-income workers often lack sufficient balances in employer-sponsored retirement accounts for the strategy to work. This makes the proposal potentially more viable for older workers with steady employment histories rather than younger or lower-wage buyers.

Many people would need to be well into their mid-30s or 40s before having enough saved for a meaningful down payment.

While it could help a small group of buyers move more quickly into the housing market, the trade-offs can be significant. Some experts also warn that without clear guardrails, the proposal could prompt buyers to withdraw retirement funds too early. They argue that such a policy would need robust financial education, clear limits on withdrawals, and safeguards to ensure long-term financial stability.

Critics also argue that the proposal does little to solve the main housing affordability problem as it fails to address larger issues like high prices and a limited number of homes for sale.

Realtor.com economist Jake Krimmel said the idea could be a “high-impact policy,” but warned it may carry unintended consequences in a recent article on the real estate listings portal. It could supercharge demand at a time when there aren’t enough homes to go around, driving up prices as competition surges.

“This is a demand-side attempt to solve the affordability crisis,” Krimmel told Realtor.com. “In the [housing] supply-constrained Northeast and Midwest, such a reform could make the affordability issue even worse.”

During his remarks at the World Economic Forum in Davos this week, Trump addressed another housing issue he had previously floated, calling for restrictions on large Wall Street investors buying single-family homes. He announced new measures to limit investor-owned housing as part of his administration’s broader response to the housing crisis, ahead of the midterm elections.

“Homes are built for people, not for corporations, and America will not become a nation of renters,” said Trump in his speech. “That’s why I have signed an executive order banning large institutional investors from buying single-family homes. It’s just not fair to the public. They’re not—they’re not able to buy a house.”

The president also brought up his plan to have Fannie Mae and Freddie Mac purchase up to $200 billion of mortgage-backed securities. These are mortgages that are bundled together and sold to investors to free up money that lenders can use to make new home loans.

If Fannie and Freddie buy these securities, also known as mortgage bonds, it is expected to bring mortgage interest rates down. Rates fell under 6% for the first time in roughly three years after the proposal was announced.

Additionally, the president called on Congress to cap credit card interest rates at 10% for a year. Trump said this will help Americans save for a home.

“Homeownership has always been a symbol of health and vigor of American society,” Trump said in his speech.