Yes, you can borrow against your 401K. What you do with the money is up to you. I've worked with investor clients who have done just what you've asked. It made sense to do so once we determined the cash flow returns are better than the borrowing costs. As for a downpayment, lenders typically require 25% for single family homes and 30% for multifamily units. There are always exceptions, but those usually have a higher financing cost.
Your 401k plan administrator can tell you exactly how much you can borrow (and if you can borrow for the purposes of buying an investment property) so go straight to the horse's mouth and be wary of mortgage brokers that do not actually lend money--unless they're an "Upfront Lender" or they may be looking out for their own best interest and recommend products that will maximize their profit at your expense! Also check with Credit Unions because they will not have to "fit" you into the typical Fannie Mae/Freddie Mac guidelines. You can join pretty much any credit union and you should include credit unions when shopping for the best rate and lowest "lender related" fees.
Here's a great website created by a highly respected Wharton Business Professor once you're ready to "shop" for a mortgage:
All the best,
As for borrowing from your 401K, it is perfectly acceptable and does not even count against your debt ratios.
See Fannie Mae selling Guide: Page 424
Secured Borrowed Funds
Borrowers can borrow against an asset they own, such as a 401(k) account or real estate,
according to the requirements of B3-6-05, Monthly Debt Obligations. The amount of the secured loan should be entered as Secured Borrowed Funds in Section VI A. The secured loan amount should be subtracted from the market value of the actual asset, and the net asset value should be entered in the appropriate field in Section VI A.
For example, if the borrower has a vested value, less taxes and penalties, of $30,000 in a 401(k) account and borrows $10,000 against the 401(k), enter $10,000 as secured borrowed funds and enter $20,000 as retirement funds. Loans that are secured against a liquid asset owned by the borrower (such as a 401(k) or
mutual fund) do not have to be entered as liabilities in Section VI Liabilities if the appropriate
documentation is provided.
If you want to find out the minimum downpayment you can get a FAST answer here and they also offer some of the lowest rates and low "lender related" fees, too:
All the best,
I think you can only buy your primary residence or a 2nd home but I'm not 100% certain.
Your best source of info is the company that manages your 401k. They should be able to give you the correct answer immediately.
Good luck and great idea!
All the best,