Is there a penalty for early withdrawal of 401k?

401(k) plans have an advantage over IRAs when it comes to the 10% federal penalty tax for early distributions. If you are 55 or older when you terminate your employment, then distributions from the company's 401(k) will be penalty free. If you roll the 401(k) to an IRA, you lose the penalty-free withdrawal option until you're 59.5. 
Be aware that any distribution to you from the 401(k) will be subject to mandatory 20% federal withholding. That's just what's withheld upfront...the actual tax you'll owe will depend on your other taxable income for the year minus deductions and credits. Also, don't forget state income tax, if applicable.
While you can take a distribution penalty-free, there may be other strategies that are better for you in the long run. And that'd probably be worth hiring a financial planner to help you assess your options and the trade-offs.
I hope that helps.

I agree with Larry's points above. In addition to the up front taxation, you may also lose some financial flexibility in the future. Aside from a potentially higher rate of return in your 401(k) than the appreciation of your home, the loss of liquidity may affect your lifestyle in the future. 
As a financial planner, I work with several dozen retirees. Whether they have a one-time expense to fund or want to refinance or purchase a home, without earned income, we have found it very difficult to get a home equity loan or mortgage. Though it is a great achievement to be debt free, you may not not be able to tap into your home equity for an unforeseen expense in the future. Having a larger amount of money in your 401(k) or other investment accounts will provide you with more flexibility than more home equity.