Low Rates Make 'Dream' Cheaper Than Ever

Amid all the bad news about mortgage defaults and foreclosures, there's good news for qualified borrowers. Thanks to the Federal Reserve, you can lock in rates lower than 5% if you're buying a home or refinancing a loan.

The average interest rate on a 30-year, fixed-rate mortgage has fallen to 5%. You could pay as little as 4.75% on a 15-year loan.

By now, everyone knows the importance of due diligence before agreeing to a mortgage. This time around, lenders are scrutinizing applicants' incomes, credit scores and home values more closely.

Buyers with a 20% down payment and good credit will get the lowest rates. There are loans that allow smaller down payments if you know where to search and which lenders to trust. These four steps will put you on the right track.

Step 1: Figure out the type of mortgage that's best for you

Stick to 30-year fixed-rate mortgages, even though interest rates will be higher than those of adjustable-rate mortgages.

Adjustable-rate mortgages are tempting if you plan to move within a few years. But your rate could increase as inflation grows, which is more likely now that the Fed is printing money to boost the economy.

A 15-year mortgage comes with lower rates, and higher monthly payments that will save you a fortune in interest if you plan to stay in your home. But if you want flexibility, you can get the same advantage by making extra principal payments on a 30-year loan.

Step 2: Understand fees and costs