This One Homebuying Mistake Could Cost Gen Z Buyers $300K in 2026
Baby boomers bought 42% of all the homes purchased in the last year, according to the National Association of Realtors (NAR), the largest plurality by far. For context, Gen X and millennials combined for 51%.
Unsurprisingly, 20-somethings in Gen Z bought only a sliver, just 4%. However, that’s up from 3% last year and while a single percentage point doesn’t sound like much, it represents a 33.33% increase over 2025.
An NPR report revealed that, despite steep financial barriers, Gen Z is outpacing millennials in homebuying compared to when they were the same age. However, many are taking a big risk to overcome those barriers and achieve the dream of homeownership and it could cost them a fortune in the long term. Find out more below.
No Bank of Mom and Dad? Borrow From Your Future
The NPR report found that 16% of Gen Z homebuyers bought their first house with help from their parents, either as a gift or a loan. That’s less than young millennials and substantially off the traditional 25%. To compensate — or perhaps simply because Gen Z is more likely to save for retirement early — more of them are taking loans from their 401(k) plans to finance home purchases.
A 401(k) loan can be better than taking an early withdrawal because it doesn’t incur the same tax hit and 10% penalty, but it should be used only as a last resort and never taken lightly.
A Big Loss Now and a Much Bigger One Later
Also according to Fidelity, the average Gen Z investor has a $13,500 401(k) balance. If that person borrowed the full 50% maximum, that would be a $6,750 loan, which might go a long way to shoring up a down payment. However, failure to repay would cost a nice chunk of change now and a whole lot more later, right when you need it most.
The immediate cost is roughly $2,025, including a $1,350 tax bill (assuming a 20% rate and excluding state taxes) plus a $675 (10%) early withdrawal penalty. That, however, is couch-cushion change compared to the opportunity cost of taking that money out of play for the decades that follow.
If a 25-year-old let $6,750 compound for 40 years until age 65 with an average annualized return of 10% (the S&P 500’s historical average with dividends reinvested), that ambitious homebuyer would have had $305,500 to spend in retirement — even with no new contributions — but lost it to a comparatively paltry 401(k) loan all those years ago.
What To Know About Borrowing Against Your Retirement
Speeding up the homeownership timeline at the expense of your 401(k) comes with some caveats, outlined by Fidelity.
You can borrow up to 50% of your vested retirement plan balance, but you must repay it within five years.
You pay interest on the loan, although the interest payments go back into your account.
If you lose your job or change workplaces, you might have to repay the entire balance immediately.
If you fail to repay, the IRS treats the remaining balance as an early withdrawal, taxes it as ordinary income and hits you with a 10% penalty.
The money you borrow is no longer invested and is not compounding during the crucial early years.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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