In a pickle : I need money for a down payment... 401k loan?

[Joshua Herald]

Greetings, 

My wife and I are making an offer on our first multi family this week. We both have full time jobs and make decent money 100k+ combined. Our credit is well above 750 each. The loan for the $210,000 house was not an issue, the originator said we could afford a much more expensive house. 

Enter my dilemma, I am short on time and as of 3 months ago we started paying down our dumb debt. We eliminated credit cards, a truck , a bed (yeah I know), and most of the other vehicle. Our goal was to keep at least 3k in savings for emergencies. The loan we have chose is an FHA with 3.5% down. We can come up with the money, that's not the issue. The issue is the 6 month requirement for the money to have been in the account and no "matress" money.

I have a nice retirement account with fidelity 50k+ that the broker for my loan mentioned to get the down payment. As long as the loan was repaid within 60 days, there are no penalties or fees. I have looked around this morning and found a lot of info on IRS.gov and investipedia on how to do this correctly to avoid a distribution charge and trigger other fees. 

My other question is : would it make more sense to just pull a personal loan for the amount? 

Im looking at $7500 for the down payment.

[Kevin S.]

@Joshua Dorkin I'd go with the 401k loan if it were me. As @Upen Patel there are restrictions on what funds can be used for downpayments (i.e. no unsecured funds). Plus, with a 401k loan all the interest you're paying on the loan is doing directly back to yourself, and the fees to take a 401k loan are typically $50-$100 total. As long as you continue to pay on the loan and don't try and take a full distribution from your 401k, you won't have a distributable event and therefore won't have to pay taxes, distribution fees, etc.

Also, one thing to double-check is if your 401k plan allows loans, almost all plans do however I have seen a few plans that don't allow them.