A mortgage with an interest rate lower than 4% may have seemed like a pipe dream during the housing boom five years ago, but plenty of Americans are locking them down in August. Could they be kicking themselves in September?

With mortgage rates hovering near 40-year lows and selling prices still depressed, many potential borrowers are wondering whether rates have further to fall.

Last week, the average rate for a 30-year fixed mortgage fell five basis points to 4.44%, the lowest rate on record since data tracking began in 1971, according to Freddie Mac. Fifteen-year mortgages are even cheaper; the average rate on a 15-year fixed loan fell to 3.92% last week, compared to 3.95% in the previous week.

Rates have been steadily declining since the first week of April, when 30-year and 15-year mortgage rates hit 5.27% and 4.62%, respectively, according to HSH.com, a mortgage-data tracking firm. By the second week of June, those rates had fallen to 4.87% and 4.33%, respectively. A month later, they hit 4.71% and 4.20%.

Several factors are weighing down rates. With investors growing more concerned about the economy, many are flocking to Treasury bonds, lowering those yields. (In general, mortgage rates tend to follow Treasury yields.)

Investors are also pricing mortgages according to the assumed life of 30-year mortgages, which is around up to 10 years (taking into account borrowers who sell their home early on, refinance or pay down their mortgage early). Ten-year Treasury yields have been dropping steadily since the end of the first quarter. On April 5 they stood at 4.01%. By Aug. 11, they had fallen to 2.72%.

Meanwhile, investors buying mortgage-backed securities are requesting higher yields from outfits like Fannie Mae, Freddie Mac and the Federal Housing Administration to justify taking on that risk, says Stuart Feldstein, president at SMR Research, which tracks the mortgage market and home-equity lending. As yields rise, mortgage rates continue to drop.

What will determine where mortgage rates go from here?

Inflation could trigger a rise in rates, as lenders try to make up for the value of the real estate investment that they expect to lose, says Paul Havemann, a vice president at HSH.com. However, inflation does not appear to be much of a concern to the Federal Reserve, which announced last week that it would hold the federal funds rate at a historic low and continue to buy Treasurys to stimulate the economy.

If investors grow more convinced that another recession is likely and seek to curb more risk, mortgage rates could fall into another tailspin.

And if rates continue to drop significantly, the borrowers who held out could see thousands of dollars in savings per year.

A borrower who took out a $200,000 30-year fixed mortgage with a rate of 5.27% in April would have monthly payments for principal and interest of about $1,107. The borrower who waited until last week would have monthly payments of $1,006. In total, they would save $1,212 for the year.

Of course, trying to time the mortgage market is difficult, and many in the industry recommend taking advantage of already-low rates.

Rates appear unlikely to decline significantly, says Chip Cummings, president of Northwind Financial, a Grand Rapids, Mich.-based training and consulting company for mortgage and realtor firms.

Investors have to look at where the best place is for their money, and if all of a sudden interest rates for mortgage rates are down to 2%, that s not enough of a spread in the market to account for the risk they would incur, he says. (By contrast, most bonds and money-market funds offer yields lower than 1%, but their appeal is their safety.)

Consumers can expect mortgage rates to hover around their current levels for the next six to nine months, as the recovery continues and the housing market keeps correcting, says Cummings. Those who are ready to buy a home should try to get their mortgage now, he says. Those who decide to wait risk missing the market bottom and paying a higher interest rate.

People are starting to see 4% and 5% [interest rates on] mortgages as the norm, but if you look over a five to 10 year period, it s a 6% norm, Havemann says.

To take advantage of declining mortgage rates, buyers will need to come to the table with several qualifications. Here are three standards they ll need to meet.

A high credit score and a down payment

Standards vary among lenders, but most require borrowers to have a credit score over 700 to qualify for the lowest rates available, says Feldstein. In addition, they ll need to make a minimum down payment of 20% on the home.

Income and asset verification

Borrowers will have to provide proof of their monthly gross income and demonstrate that their monthly mortgage payment won t surpass 28% of it, says Cummings. In addition, their total debt payments, including their mortgage, car loan and credit cards, shouldn t surpass 36% of their monthly gross income.

They will also need to prove they can afford the down payment by showing bank statements, brokerage account balances and other documents illustrating cash in their name, says Feldstein.

Some home equity, if refinancing

Declining mortgage rates offer homeowners an opportunity to lessen their debt burden by refinancing.

To receive the lowest mortgage rates available, a borrower s home must have at least 20% equity in it so that they re not borrowing more than 80% of its current market value.

Anyone considering this has to make sure they ll have enough equity to put them in position that makes refinancing worthwhile, says Cummings. Those not paying mortgage insurance (which is typically required for new mortgages with less than a 20% down payment) want to make sure they re not refinancing for more than 80% of the value of their home. On the other hand, borrowers paying mortgage insurance could find that refinancing brings the debt they owe on their home below the 80% level, eliminating the insurance payment.