NOT a good idea! I mean, not a good idea to take money out of your 40l(k) to do it, although it is a wonderful idea to try to help your son buy a home. And I recently saw some numbers indicating a significant number of first-time home buyers received down payment help from family members.
BUT, if you take money out of your 40l(k) plan you will pay ordinary income taxes AND a 10 percent penalty if you are under age 59-1/2. And most companies don’t let you simply withdraw from a 40l(k) plan while you are still working there –but will consider it a loan (which if not repaid in a timely fashion or if you leave your job) will be considered a withdrawal subject to penalty and taxes. AND, you lose all future growth of that money once withdrawn, thereby jeopardizing your own retirement.
Note: First time home buyers can withdraw up to $10,000 from an IRA penalty-free toward the purchase of a home. But the money will still be taxable unless it is a Roth IRA. Also, parents can borrow $10,000 from an IRA to help a child buy a first home.
My other suggestion would be to refinance your own home, and withdraw cash. But since that cash is not going toward improving your own home, the interest on that portion of your mortgage would not be tax-deductible.
It’s tough for young people to purchase a home today, and you are not alone among parents in wanting to help. But this advice reminds me of what they say when you get on a plane: Put on your oxygen mask first, before helping others!