Can I Borrow From My Annuity to Put a Down Payment on a House?

You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. In fact, when figuring a way to fund your down payment, borrowing from an annuity should be a method of last resort.

Key Takeways

  • When borrowing from an annuity, be prepared to pay an assortment of fees and penalties.
  • The insurance company levies a penalty, called a surrender charge, on early withdrawals from an annuity.
  • You may be able to borrow from the annuity without paying a penalty if you've held the contract long enough.

How Annuities Work

An annuity is a unique investment vehicle that it is managed by a life insurance company rather than a traditional brokerage house. One way to purchase an annuity: You deposit money into an annuity during your working years, and the growth is tax-deferred until you begin taking distributions at retirement. At this point, both principal and interest are returned to you in a series of regular payments.

Penalties and Surrender Charges

The benefit of an annuity is the peace of mind it can offer: regular, guaranteed income throughout your retirement years. However, the product comes with many drawbacks. The biggest is your inability to withdraw money before age 59½ without incurring heavy fees and penalties—much like any other retirement account, such as a 401(k) or an individual retirement account.


Annuities are investment vehicles managed by a life insurance company rather than a traditional brokerage house.

The Internal Revenue Service (IRS) is the first to penalize you for withdrawing from an annuity before reaching age 59½. Typically, you face a 10% tax on any money you withdraw early. You also have to pay the ordinary income taxes, which were deferred to that point, on the withdrawn money.

If you are buying or building your first home and you borrow from an annuity for the down payment, the IRS grants an exemption to the penalty. You will still be liable for the ordinary income tax.

But the insurance company also levies its own penalty, called a surrender charge, on early withdrawals, and this can be as high as 20%. Unlike the IRS, insurance companies do not waive surrender charges for any individual financial circumstances, such as buying a first home.

Annuities are structured in a number of different ways, and some are sold without a surrender period. You may also be able to borrow from the annuity without paying a penalty if you've held the contract long enough. The contract specifies the number of years you'll be liable for a surrender fee. The interest rate on this fee generally declines over time.

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