Also note that if you funded the Roth IRA with a conversion from some pre-tax account (like a traditional IRA or 401k), you will also pay a 10% penalty on withdrawals until 5 years have passed from the conversion.
The bottom line is that if you want to buy a home that you will not use as your main residence, you can withdraw contributions without penalty or tax, but if you withdraw conversion amounts less than 5 years old you will pay a 10% penalty, and if you withdraw earnings you will pay income tax plus a 10% penalty. If you live in the home as your main residence, you can avoid the 10% penalty on the first $10,000 on which a penalty might be assessed (withdrawal of conversions or earnings). You would still owe regular income tax if you withdraw earnings, and you will pay the 10% penalty if you withdraw more than $10,000 of earnings or conversions.
Also, what is this "on paper you are a non-occupying borrower"? The IRS tax laws require you to use the home as your main residence to qualify for the exception to the 10% penalty. The IRS won't care if you live there but lied to the mortgage bank. However, the mortgage bank may have reason to cancel or recall the loan if you are living in the home after telling them you won't be living there. You may want to consult with an attorney if you plan to live in the home.
