Retirement Pictures
Retirement Pictures

Need some extra cash for that down payment? You can use funds from your IRA to help out. See more pictures of retirement.

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These days, it can be hard enough to pay bills, much less save enough for a down payment on a house. The median price of a home today ranges from $138,900 to $242,500, depending on where you live [source: National Association of Realtors]. That means the typical 20 percent down payment would require as much as $30,000 to $50,000. Even so, you may want to buy that home sooner rather than later so that you can start paying yourself (your mortgage) instead of a landlord.

But can you use your Individual Retirement Account (IRA) money to buy a home? The answer is yes. You can, and in some cases you can do so penalty-free. If your employer and the plan permit, first-time buyers can take advantage of the hardship rule of early IRA withdrawal. If you qualify, you won't have to pay the early distribution tax that normally goes along with early withdrawal from an IRA.

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Let's look at some ways to qualify. First, make the home your primary residence. As long as you haven't owned a home for two years, and the employer and type of plan allow, you can qualify for this hardship exception and use money withdrawn from your IRA toward purchasing a home. Remember, the home you buy must be considered a primary residence. For example, you can't use the exception for buying a seasonal vacation home, such as a ski chalet or lake cabin.

You can, however, use it to buy a primary residence for yourself, and in some cases, you can buy residences for family members, too. The home can be for your spouse, your child or your grandchild, or it may be for your spouse's child or grandchild (in the case of remarriage). Sisters, brothers and their children aren't included in this exception.

Next, let's look at some other ways in which cashing out your IRA can help you buy a home.