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You've gotten some good advice above and you have thought through some of the issues. I think you do need to consider all of those things.

I have an additional comment that will only make this a tougher decision. When it comes to buying a house borrowing from a 401(k) INSTEAD of borrowing elsewhere MAY be a good deal from a tax perspective.

You will reduce the returns in your 401(k) plan, but, you'll increase the equity you'll have in your home. That money will not be taxed and, most likely, the income (in the form of increased value in your house) will not be taxed either (if you meet the requirements for the $500,000 exclusion by living there for at least two years) . So, even though the repayment is taxed twice, you're in the same place on the principal (because otherwise you would have had to use after-tax funds for the down payment and the borrowing did not cause a taxable event) and the income will never be taxed (but it would in a 401(k) distribution). Despite that strong tax reason to borrow for the purchase, you still have all the downside (this is intended for retirement, you'll have to pay it back if you leave this employer, mortgage interest is deductible but interest on the loan from the 401(k) is not, etc.)
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