For many first-time buyers, the hardest part of purchasing a condo isn’t the monthly payment—it’s coming up with enough cash for the down payment and closing costs. The good news? You may have more options than you think.

Two powerful tools buyers often overlook:

1. Borrowing from (or withdrawing from) a retirement account, and

2. Negotiating seller-paid closing cost credits.

Used together, these can dramatically reduce the upfront cash needed—and sometimes make homeownership achievable years sooner than expected.

Here’s what today’s buyers need to know.

1. You Don’t Need 20% Down — Here’s the Truth About Down Payments

One of the biggest misconceptions in real estate is that you must put 20% down. While 20% down eliminates mortgage insurance, it’s not required—and waiting to save that much often delays homeownership by years.

Low-Down-Payment Options

• 3% Down Conventional Loans
  Some lenders offer first-time buyer programs with just 3% down, solid credit, and stable income.

• FHA Loans (3.5% Down)
  Ideal for buyers with:

  • Lower credit scores

  • Higher debt-to-income ratios
    FHA requires 3.5% down and includes mortgage insurance but is an excellent option for buyers who need flexibility.

• 5% Down Conventional Loans
  A popular option that reduces monthly mortgage insurance costs.

Why This Matters

Between low-down-payment programs and the ability to borrow from retirement funds, the upfront cash needed to buy a condo is often far less than people assume.

2. What Closing Costs Are — and How Much to Expect

In addition to the down payment, buyers must pay closing costs—fees associated with finalizing the sale and the mortgage.

Common Closing Costs Include:

• Lender fees

• Appraisal

• Attorney or settlement fees

• Title insurance

• Prepaid taxes and insurance

• HOA transfer or move-in fees (varies by building)

• Recording and transfer taxes

Typical Closing Costs in Arlington

Expect to spend about 2.5%–3.0% of the purchase price.

Example:
On a $500,000 condo, closing costs are typically $12,500–$15,000.

And yes—seller credits can cover some or all of these costs, depending on the loan type.

3. Borrowing From Your Retirement Account: The Basics

Not all retirement accounts work the same way, so it’s important to understand the rules for yours.

401(k) Loans

Most employer-sponsored 401(k) plans allow you to borrow the lesser of $50,000 or 50% of your vested balance.

Key guidelines:

• Repayment term: Generally up to 5 years, though some plans offer extended repayment for home purchases.

• Repayment method: Automatically withdrawn from your paycheck.

• Interest: Paid back to yourself.

• Tax impact: None, as long as you follow the repayment schedule.

Potential downsides:

• If you leave your job, the loan may become due quickly.

• Defaulting converts the loan into a taxable withdrawal (plus penalties).

• Your retirement investments temporarily pause growth on the borrowed amount.

IRA Withdrawals

IRAs do not allow loans, but they do allow certain penalty-free withdrawals.

Traditional IRA

• First-time buyers can withdraw up to $10,000 penalty-free.

• However, you will owe income tax on the withdrawn amount.

Roth IRA

• You can withdraw contributions anytime tax- and penalty-free.

• You can withdraw up to $10,000 of earnings penalty-free if the account is at least 5 years old and you’re a first-time buyer.

Downside:
IRA withdrawals permanently reduce your retirement savings.

4. How Lenders View Retirement Funds

Good news: Lenders generally accept retirement account funds as an approved source for down payments.

401(k) Loans

• Usually not counted as monthly debt in your DTI.

• Must document the loan terms and show proof of fund availability.

IRA Withdrawals

• Counted as liquid funds.

• Requires documentation and a clear paper trail.

Lenders are familiar with these strategies—it’s more common than many buyers realize.

5. Pair Retirement Funds With Seller Credits

Even with retirement funds, closing costs can be a challenge. That’s where seller-paid closing cost credits come in.

Contribution Limits by Loan Type

• Conventional Loans: Up to 3% of the price (with minimum down payment)

• FHA Loans: Up to 6%

• VA Loans: Often 4% or more, depending on the costs

These credits can help pay for:

• Title fees

• Transfer taxes

• Prepaid taxes & insurance

• Lender fees

• HOA fees

When you combine:

• 3% down,

• Retirement account funds, and

• Seller credits,

your upfront cash requirement can shrink dramatically.

6. Pros & Cons of Using Retirement Funds for a Down Payment

Pros

• Buy sooner and start building equity faster.

• Use your 401(k) without early withdrawal penalties.

• Seller credits reduce or eliminate closing costs.

• Down payment flexibility helps buyers stay competitive.

• A smart path in high-cost markets like Arlington.

Cons

• Reduces retirement growth temporarily.

• Job changes can disrupt 401(k) repayment.

• IRA withdrawals may have tax consequences.

• Not ideal if you’re draining most of your savings.

7. When This Strategy Makes Sense

This approach is ideal if:

• You’re financially stable but short on liquid cash.

• You want to buy sooner rather than wait years to save 20%.

• You’re renting at a high monthly cost.

• You plan to stay in the condo for at least a few years.

Less ideal if:

• You’re changing jobs soon.

• You’d deplete your entire retirement balance.

• Your budget is already stretched thin.

FAQ: Using Your 401(k), Closing Costs, and Low Down Payments

Q: Can I really borrow from my 401(k) to use as a down payment?
Yes—most employer 401(k) plans allow you to borrow the lesser of 50% of your vested balance or $50,000. As long as you follow the repayment terms, it’s treated as a loan, not a taxable withdrawal.

Q: How much are closing costs when buying a home?
In Arlington, closing costs typically run 2.5%–3.0% of the purchase price.

Q: Can the seller really pay my closing costs?
Yes. Depending on the loan type, sellers can credit 3%–6% of the purchase price toward closing costs.

Q: Do I need 20% down to buy a home?
No. Many first-time buyers purchase with 3% down (conventional) or 3.5% down (FHA).

Q: How do lenders view a 401(k) loan for a down payment?
Lenders typically allow 401(k) loans as a valid source of funds and generally don’t count them as debt in your DTI.

Q: Is tapping my retirement account a bad idea?
It depends. It reduces retirement growth, but buying sooner grows equity. The tradeoff can make sense depending on your timeline and finances.

Q: What if my credit score isn’t perfect?
FHA loans offer flexibility for buyers with lower credit scores and require only 3.5% down.

Final Thoughts

Using retirement funds—combined with low-down-payment loan programs and seller-paid closing costs—can dramatically reduce the upfront cash needed to buy a condo. For many first-time buyers in Arlington, this is the strategy that finally makes homeownership possible.

If you're thinking about buying your first condo and want to explore your financing options, I can walk you through the numbers and connect you with lenders who specialize in first-time buyer programs.

Ready to see if this strategy works for you? Let’s run the numbers together.