Ok so a friend of mine wants to get a 401 distribution to buy her a car with, then finance a house. Is this a no no. she asked me if she should pick. I just didnt know how it looks from a lender's standpoint. Does it depend on how much she has to pay back a month, like any other loan or what. plus, dont you get penalized on 401k early distributions, even for a house? I thought that only IRA's forego the penalty for education or house? Am I right. Help me out here. I'm a RE agent and would of course rather see her get a house!

I have taken out a loan on my 401k for a house and it was perfectly acceptable by my lender. They do look at how much your payment will be and you will be required to submitt those documents. NO penalty for taking out a loan but it may depend on your company.

Catgirl is correct. There's no penalty to use your 401k to buy a house. I'd be very surprised if she could use any of it to buy a car though.

I would look at the tax implications of an early draw of the 401K. I am not a Tax Accountant but I believe it can be as high as 10%.