re: Borrowing money from 401k...how does this work usually?

It's not the worst way to borrow money to get into a house. But as others have cautioned, you may be stretching yourself thin if something unexpected happens. With that said, apart from the federal rules that govern them, the only way to know how your plan works is to read the plan docs. Under three different employers, I've had three different plans, although I've only taken a 401k loan once in my life (as a way to do something financially odd that paid off by luck). Some allow the interest on the loan to go back into the account - so you're basically paying yourself. With some plans, you're selling shares to raise funds. With others, you're not. The loan repayments tend to be separate from the employer and employee contributions... but read your plan docs.

If you happen to leave or get laid off while you still have a balance, you'll have a certain period of time to pay the loan off before you're penalized.

Good luck with the first time home purchase.