If you used IRA money to help make a down payment on a home and it qualifies as a first home you are either buying, building, or rebuilding (see publication 590 and talk with your tax advisor), it is considered a distribution from the IRA and taxed as income in the year of distribution. It qualifies for special tax treatment in that monies taken out of the IRA will not be assessed a 10% penalty if you are under age 59 and 1/2. It is not a loan. However, it may be possible to pay back part or all of the monies if it is done within 60 days of taking that money out of the IRA via a 60 day rollover. Any portion of the money that is paid back into the IRA via the 60 day rollover provision would then not be considered a distribution and therefore would not be taxed.
Edwin, If you choose to not pay back the IRA within 60 days, then the money taken out of the IRA would be considered a distribution and taxed as income in the year of distribution. If you qualify for as a first time home buyer (again, you should confirm this with CPA or tax accountant), then you would not be hit with a 10% penalty for early withdrawal if you are under the age of 59 and 1/2. What is the advantage? Maybe the downpayment from the IRA is enough to eliminate PMI on your loan. Maybe the reduction in the monthly payment of the loan from the downpayment is enough to justify the withdrawal. What is the disadvantage? It is possible that the IRA withdrawal when added to your other earned income puts you in a higher tax bracket.. so be careful. There is also an opportunity cost since the money taken out of the IRA would no longer be invested. I hope this helps you out.