Someone told me I could use 401k money for a down payment on a condo with no tax penalty. Is this true? If so, what would it take to make it happen? What are the limitations?
It’s worth familiarizing yourself with the language directly from the IRS.
401(k) Resource Guide - Plan Participants - General Distribution Rules
Short, short version:
go to 401(k) website and request loan - you can either get one that has to be repaid within about 5-6 years without any paperwork, or you can get one on longer payment terms by providing a bunch of paperwork documenting that it is for a home purchase. You’ll also have to register a bank account to receive a direct deposit. Expect it to take a few eeks to get your money. You can typically borrow up to half of what’s in your 401(k), but this can change from plan to plan.
You will not be taxed on your withdrawal. If you fail to repay the loan, you will incur taxes and penalties.
Your loan will go into repayment very soon after you take it out. Maybe 1-3 pay periods. Your payment will (most likely) automatically deducted from your paycheck. The repayments that you make will come from the after-tax portion of your pay. The payments that you make will be based on an amortizzation table similar to what you see in relation to a mortgage or a car loan. The interest rate is typically low, maybe around 4 or 5 percent. You pay the interest to yourself (that is, into your own 401(k))- it does not go to the plan administrator.
You will, however, have to pay some processing fees. These will vary from plan to plan.
Make sure to read all of the fine print before you move forward. The best thing to do would be to read everything you can find on your plan’s site and then call their customer support and ask them to walk you through the process and ask them any more questions that you may have.
eta: make sure you find out what the result would be from changing jobs or plans or soemthing like that
pps: I took out a 401(k) loan for the down payment on my condo, and am glad that I did, considering that the tax credit I got for buying the place was more than my down payment 
(although it didn’t cover all of the closing costs)
Nitpick: Your mileage may vary on the direct deposit thing. I did this in 2007 and just got a check in the mail.
Definitely read up on your specific plans rules. Other posters have covered the idea of getting a loan from your plan. I did it just to cover the down payment on my new house until I settled on the old one. But if you lose your job, the plan may require you to pay back the full amount or take it as a taxable withdrawal.
So speak to your plan administrator and possibly a financial advisor before diving in.
I had the option when I did mine, but dd seemed quicker, even with the registry time.
Thanks for the info, guys 
And- I thought the tax credit for (first-time) home buyers expired. Is that that the case?
Yes, although if you were active military on extended duty outside of the US, you can apply for a 1-year extension.