NEW YORK - Demand for U.S. home loans rose last week for the third straight week as mortgage rates fell to a one-month low and stoked refinancing, an industry group said on Wednesday.

Borrowers are rushing to take advantage of low borrowing costs and other incentives while they last.

The Mortgage Bankers Association's index of total home loan applications rose 9.1 percent in the week ended January 15 to 575.9 on a seasonally adjusted basis. The increase was driven by a 10.7 percent jump in the refinancing index, while home purchase demand rose 4.4 percent to 223.0 last week.

Average 30-year mortgage rates dropped to 5 percent last week, the group said, baiting consumers to apply to refinance and purchase homes before borrowing costs rise again.

The 30-year home loan rate is widely seen ending this year closer to 6 percent.

An extended and expanded federal tax credit will also disappear this spring. Consumers who qualify for an $8,000 first-time buyer credit or a $6,500 move-up buyer credit need to sign purchase contracts by April 30 and close on home loans by June 30.

Despite these lures to buyers, refinancing still represents the lion's share of all mortgage applications, at 71.7 percent, the Mortgage Bankers Association said.

Overriding concerns the fallout from unemployment, underemployment and the ongoing sale of foreclosure properties, however, continue to keep many potential buyers out of the market.

Housing is unlikely to gain much traction until these barriers start to fall.

We have 10 percent unemployment, almost one in four borrowers are under water and cannot refinance, said Shaun Ahmad, president of capital markets at RoundPoint Financial Group in Charlotte, North Carolina.

Being under water means owing more on a mortgage than the house is worth. Refinancing is typically off the table for those borrowers, preventing them from taking advantage of low loan rates to cut monthly payments.

The greatest challenge facing the market is still the growing number of delinquent loans, Ahmad said. So it's too soon to say if we're headed for a sustained recovery.

Borrowers across the credit spectrum face higher hurdles.

In the latest example, the Federal Housing Administration is tightening standards, sources familiar with the plan said on Tuesday, making it tougher for borrowers with spotty credit.

The varied impediments have not been lost on home builders.

The National Association of Home Builders' sentiment index in January fell to its lowest level since June.

Mortgage