I know you can take money out without penalties to purchase a home. I don't know about paying off a home you already own. I would check with an accountant in your area or check some free websites.

Many 401k plan will allow you to borrow against your 401k.

This would be a far better option if your plan offers it.

If your plan allows for hardship distributions then you can take one to prevent foreclosure or eviction. However, you can only take enough to catch you back up, they won't pay off your home or some to pay ahead. They will give you enough to pay for the tax withholding AND the 10% penalty in addition to the hardship amount. And, it's only if you have that much available. Many plans only allow you access to the funds that you put in, not the matching or profit sharing.

Answer to second question is yes, you still get hit with the 10% penalty.