You must be a first-time home buyer, but the IRS has a very liberal definition of first-time home buyer.
Generally speaking, first-time home buyers can withdraw up to $10,000 from their Individual Retirement Arrangments (IRA) or Roth IRA accounts, penalty-free, in order to pay qualified home purchase expenses such as a down payment.
Spouses can withdraw up to $20,000. There is a lifetime limit, though.
Once you use up your distribution free passes, you cannot put the money back in your account and then use it again in the future. Remember, too, that you still have to pay taxes on the money, but not the 10% early withdrawal penalty.
According to the IRS, a first-time home buyer is someone who has not bought a home in the last two years, or the spouse, parent, child, or other relative of such a person. In other words, your grandmother can withdraw up to $10,000 from her IRA to help you buy a house as long as you have not bought a home in the last two years.
For more information, go to www.irs.gov or call 800-TAX-FORM and get a copy of Tax Topic 428 (Roth IRA Distributions) and Publication 590 “Individual Retirement Arrangements.”