The exception to the penalty is for amounts used to "acquire" the first home. Jbthomp07, the expenses you mentions sound like improvements, not acquisition costs. If you could live in the home without these improvements, I don't think that they could be considered to be acquisition costs.
Section 72(t)(8)(C):
(C) Qualified acquisition costs
For purposes of this paragraph, the term "qualified acquisition costs" means the costs of acquiring, constructing, or reconstructing a residence. Such term includes any usual or reasonable settlement, financing, or other closing costs.
