Using Your 401(K) to Buy a Home in Texas: Smart Strategy or Costly Mistake?

By Megan Bludau — Top Mortgage Originator in the Greater Houston Area

If you’ve ever Googled “Can I use my 401(k) to buy a house?” you’ve probably seen headlines warning you not to do it.

The argument usually goes like this: “Pulling money from your 401(k) will ruin your retirement.”

And while that can be true in some situations, it’s not the full picture — especially for homebuyers in Texas markets like the surrounding Greater Houston area, where appreciation, rent growth, and long-term equity matter.

Let’s walk through the numbers — honestly, conservatively, and with real context — so you can decide what’s right for your situation.

The Common Warning (And Why It’s Incomplete)

Articles like the one published by Realtor.com correctly point out that:

• 401(k) funds grow tax-deferred

• Compounding over time is powerful

• Pulling money early can reduce retirement balances

  
  

All true.

But what these articles often leave out is what that money can do when it’s redeployed into an appreciating asset — like real estate — instead of sitting on the sidelines while you continue paying rent.

This isn’t about emotion. It’s about opportunity cost.

Scenario Assumptions (So We’re All on the Same Page)

401(k) Scenario

• Total 401(k) balance today: $80,000

• Amount used toward home purchase: $20,000

• Remaining invested: $60,000

• Time horizon: 24 years

• Average annual return: 6%

• No future contributions included (keeps math conservative)

Housing Scenario (Greater Houston Area)

• Home purchase price: $400,000

• Down payment from 401(k): $20,000

• Annual appreciation rate: 4.5% (conservative for Texas)

• Equity comparison window: 5 years

• Rent alternative: $2,000/month

• Rent increases assumed: 0% (very conservative)

What Happens If You Leave the Full $80,000 Invested?

Starting Balance	Years	Rate	Future Value
$80,000	24	6%	~$324,000

What Happens If You Use $20,000 to Buy a Home?

Starting Balance	Years	Rate	Future Value
$60,000	24	6%	~$243,000

The opportunity cost of pulling out the $20K to use towards a real estate purchase is ~$81,000 (~$324K-~$243K=~$81K).

This is the number most articles focus on - and yes, it matters.

But now let's look at the other side.

What That $20,000 Does in Texas Real Estate...

In our example, we will be using a 4.5% annual appreciation rate, which is conservative in most Texas markets.

Year	Estimated Home Value
Purchase	$400,000
Year 5	~$498,000

After 5 years of owning a home, you will have gained around $98,000 in equity. The amount you would have paid towards your principal at this point in time is about $25,000.

Source	Amount
Appreciation	~$98,000
Principal Paydown	~$25,000
Total Equity	~$123,000

Now Let’s Talk About Rent (The Hidden Cost)

If you continue renting at $2,000/month (assuming there's never a hike in your rent payment, which is a rarity):

Timeframe	Rent Paid
1 Year	$24,000
5 Years	$120,000

Equity gained: $0

Return on investment: $0

That money is gone permanently.

In Summary, Renting vs. Buying Using $20K from a 401(K)

Scenario	5-Year Financial Impact
Continue Renting + Keep 401(k) Intact
Rent paid over 5 years	–$120,000
Equity gained	$0
Net housing outcome	–$120,000
Use $20K from 401(k) to Buy a Home
401(k) long-term opportunity cost	–$81,000
Home appreciation (5 years)	+$98,000
Principal paydown (5 years)	+$25,000
Rent avoided	+$120,000
Net 5-year financial impact	+$162,000

Even after accounting for the long-term opportunity cost of using retirement funds, buying a home in a strong Texas market can result in significantly higher net wealth than continuing to rent.

So… Is Using a 401(k) to Buy a House Smart?

The answer is not always — but sometimes, absolutely.

In Texas markets where:

• appreciation remains steady,

• rents are high,

• buyers plan to stay several years,

• and refinancing later is likely,

  
  

...the cost of waiting and renting often outweighs the long-term retirement drag — especially when the funds are used to acquire an appreciating asset instead of consumption.

Important Caveats (Because This Is Not One-Size-Fits-All)

Using a 401(k) should always be evaluated based on:

• loan vs. withdrawal rules

• penalties and repayment terms

• job stability

• time horizon

• overall retirement strategy

This is why I never give blanket advice — only personalized strategy.

The Bottom Line

Using retirement funds to buy a home isn’t reckless when done thoughtfully and with strategy. In many Texas scenarios, it’s a calculated wealth-building decision — not a mistake.

The real risk isn’t using a 401(k).The real risk is doing nothing while rent and home prices continue to rise.

Ready to Start Your First Home Journey?

Let’s look at your real numbers — not headlines.

👉 [Schedule your consult →] Schedule with Megan Bludau 

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