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I think we agree. My point, although inartfully stated, is that if there is no other way to get into the house (which is probably not the case here based on the orignal post) then borrowing from the 401(k) is not necessarily a bad option. You have all the usual caveats. However, if the borrowing permits the person to buy a house they should financially be at least no worse off and they'll have the comfort of living in their own house.

It may be that investing in a smaller mortgage can be a better deal than other investments (like the last couple of years) although I agree with your implicit point that doing so long term may not get people the best returns.
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