How Much Can I Borrow From My 403(b) to Buy a House?

You can borrow from your 403(b) to buy a house up to the lesser of $50,000 or half your vested account balance, with a floor that lets participants with smaller accounts borrow up to $10,000 even when half their balance falls short of that number. These caps apply to the loan itself, not the home’s price, and your plan must specifically allow loans before any of it matters.¹

How the Borrowing Formula Works

The tax code sets a two-part rule every 403(b) plan has to follow. Your maximum is the lesser of $50,000 or the greater of half your vested balance or $10,000.¹ Vested balance means the portion of the account you fully own, not counting any employer contributions still on a vesting schedule.

Three examples show how the math lands in practice:

With $200,000 vested, half is $100,000, so the $50,000 statutory cap controls. You can borrow $50,000.
With $40,000 vested, half is $20,000, which sits below the cap. Your limit is $20,000.
With $15,000 vested, half is $7,500, but the $10,000 floor lifts you to $10,000. You still cannot borrow more than the account holds.

The $50,000 ceiling shrinks if you have borrowed from the plan recently. Your administrator looks at the highest outstanding loan balance during the 12 months before your new loan and reduces the $50,000 cap by the difference between that peak and what you still owe when the new loan is issued.¹ If you borrowed $30,000 last year and paid it down to $10,000, the $20,000 you repaid still counts against you for another 12 months, leaving a maximum of $30,000 rather than $50,000.

Your Plan Has to Allow Loans

Federal law permits 403(b) loans. It does not require any plan to offer them.² The plan’s written document has to include loan provisions before a single dollar can leave the account.³ Check the summary plan description or call your plan administrator before you run any numbers.

Plans that do allow loans can set their own extra restrictions: a minimum loan amount, a cap on how many loans you can have outstanding at once, or an enrollment waiting period. Those additional rules are legal so long as they don’t exceed the federal limits.

What Counts as a Home Purchase Loan

The extended repayment window that makes a 403(b) loan practical for homebuying only applies if the money is used to acquire a dwelling that will become your principal residence within a reasonable time.¹ The statute uses the word “acquire,” and IRS sample plan language mirrors that term without expanding it to include renovations or refinancing.⁴ Most plans treat the loan as covering a down payment and possibly closing costs tied to the purchase, but the specifics live in your plan document.

A vacation home or investment rental doesn’t qualify. The property has to be where you actually live, and your administrator will ask for documentation, typically a signed purchase agreement showing the address and buyer names.

Repayment Terms

Ordinary 403(b) loans have to be repaid within five years, but the tax code carves out an exception for loans used to buy a principal residence. The statute waives the five-year deadline for home purchase loans without setting its own maximum.¹ IRS sample plan language caps the repayment period at 15 years.⁴ Your plan’s own terms control the actual deadline, so read the plan document rather than assuming you’ll get 30 years.

Every plan loan has to be repaid in substantially equal installments at least quarterly.⁵ Most plans collect through automatic payroll deductions, with each payment covering both principal and interest and flowing back into your own retirement account.

Interest Rate and Real Cost

Most plan administrators set the rate at prime plus one or two percentage points, fixed for the life of the loan. The IRS treats prime plus two percent as reasonable, and many plans charge prime plus one.⁶ With the prime rate at 6.75% as of late 2025, typical 403(b) loan rates fall in the 7.75% to 8.75% range.

On paper the rate looks reasonable, and the interest goes back into your own account rather than a bank’s. That framing makes the loan feel cheap. It isn’t. Two costs hide behind the headline rate.

The money you borrow stops earning investment returns for the entire repayment period. If your 403(b) investments would have averaged 7% annual growth and you borrowed $30,000 for 10 years, the foregone growth alone could cost tens of thousands by retirement. The interest you pay yourself is fixed and typically lower than long-term equity returns, so it doesn’t fully replace what the market would have generated.

Every repayment dollar also comes out of your after-tax paycheck. When you eventually withdraw the money in retirement, it gets taxed again as ordinary income. The interest portion takes the worst of it: earned, taxed, repaid, then taxed a second time on withdrawal. Unlike mortgage interest, interest on a retirement plan loan is not tax-deductible.

What Happens If You Leave Your Job

This is the risk that sinks more 403(b) borrowers than any other. Most plans require you to repay the outstanding balance in full when you separate from employment.⁷ If you can’t, the unpaid balance becomes a plan loan offset that the plan reports as a distribution.

You do get a safety valve. You can roll over the offset amount into an IRA or another eligible retirement plan by your tax filing deadline, including extensions, for the year the offset happens.⁸ Filing an extension typically pushes the rollover deadline to October 15 of the following year. The catch is that you need cash from somewhere else to fund the rollover, because the original loan proceeds went into your house. Miss the rollover deadline and the full offset amount becomes taxable income, subject to the same tax and potential 10% early withdrawal penalty as a default.

If you’re thinking about changing jobs within the next several years, or you work in a volatile field, borrowing from your 403(b) carries a ticking clock you can’t easily defuse.

What Happens If You Default

Missing payments or falling off the repayment schedule triggers a “deemed distribution.” The IRS treats the entire unpaid loan balance plus accrued interest as a taxable distribution.⁹ That amount hits your taxable income for the year, and if you’re under 59½ you also owe a 10% early withdrawal penalty.¹⁰

On a $40,000 defaulted loan, someone in the 22% federal tax bracket would owe $8,800 in income tax plus a $4,000 penalty, a $12,800 hit in a single tax year. And the deemed distribution doesn’t actually cancel the debt. You still technically owe the money back to the plan even after being taxed on it.⁹ That surprise catches most people off guard.

Loan Versus Hardship Withdrawal

Some 403(b) plans also allow hardship withdrawals for the purchase of a primary residence. The two options work very differently.

A loan comes out of your account tax-free as long as you follow the repayment rules, and the money eventually goes back into your retirement savings. A hardship withdrawal is permanently removed from the account, taxed as ordinary income in the year received, and potentially hit with the 10% early withdrawal penalty if you’re under 59½.¹¹ There is no repayment mechanism. That money leaves your retirement picture for good.

The loan is almost always the better option when you can manage the payments and expect to stay with your employer. A hardship withdrawal makes sense only when the plan doesn’t offer loans, you’ve already maxed out loan availability, or your financial situation is unstable enough that taking on repayment would be reckless. Even then, the permanent tax cost and retirement damage are steep.

1
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
2
Internal Revenue Service. Retirement Plans FAQs Regarding 403(b) Tax-Sheltered Annuity Plans
3
Internal Revenue Service. 403(b) Plan Fix-It Guide – You Haven’t Limited Loan Amounts and Enforced Repayments
4
Internal Revenue Service. 403(b) Listing of Required Modifications
5
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
6
Internal Revenue Service. Transcript for the Participant Loans Phone Forum
7
Internal Revenue Service. Retirement Topics – Plan Loans
8
Internal Revenue Service. Plan Loan Offsets
9
Internal Revenue Service. Fixing Common Plan Mistakes – Plan Loan Failures and Deemed Distributions
10
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs
11
Internal Revenue Service. Hardships, Early Withdrawals and Loans