You can probably afford a bigger and more expensive new home than you think.

The interest rate charged by lenders for home mortgage loans is the key factor making houses more affordable. And experts predict these rates will remain stable in the coming months. Add a relatively small down payment of five percent, and the dream of home ownership seems closer than it has in quite some time.

Most lenders will be glad to give you more formal pre-qualification over the phone, and can take into account other details of your personal financial picture. While this process does not obligate the lender to make you a loan, it does give you a more accurate assessment of your borrowing power.

Also contributing to buyer's strength is availability of short term buy-downs and adjustable rate mortgages. A buy-down is a temporary reduction in the interest rate charged by the lender in exchange for a fee paid in cash at the closing. The advantage is that you qualify at the lowered interest rate, and can obtain a larger loan amount. A "2-1" buydown lowers the interest rate two percent in the first year, one percent in the second, and the loan reverts to the original rate for years three through thirty. In exchange for a cost of about 3% of the loan amount, you can qualify for as much as twenty percent more loan. But don't forget that the payments will be going up annually for the next two years.

Likewise, in adjustable rate loans, borrowers give up the stability of a permanent fixed rate for lower initial rates, sometimes called "teaser" rates because they are set artificially low to attract consumers. Adjustable rate loans are available today in the 5 percent range, giving buyers a shot at buying ever more expensive homes. It is important to remember that these loans can adjust upward (or downward) as much as two percent annually, and as much as six percent lifetime. This could almost double the monthly payment. Because fixed rates are now so low, this is probably not the best time to choose an adjustable rate loan.

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