How to Renegotiate a Mortgage

Document all conversations with your lender, including the name of the individual you speak to, the content of the conversation and the time of the call. If you speak to someone who is particularly helpful, ask for his or her extension in case you need additional information later.

Possible solutions: If your lender decides that you qualify, there are a few ways it can modify your loan. It can, for example, lower your rate to current levels as reported by Freddie Mac (FRE Quote). Your principal is re-amortized at the new rate, meaning the amount you owe on your old mortgage gets rolled over into a new loan and paid off at the new rate. That may bring your monthly payments back in line with the target DTI of 38%.

If your DTI is still too high, your lender can lower your rate even further -- down to as little as 3% -- and then schedule specific rate increases over the next few years. These increases, or rate steps, will eventually bring your rate back up to the rate that was current when you signed your modification agreement.

Alternately, your lender can change the duration or principal of your loan in order to lower your DTI. Extending your loan's term from 30 to 40 years, for example, can reduce your monthly payments. Or your lender may suggest principal forbearance, in which case it sets aside a portion of your loan principal interest-free, to be paid back in full when you refinance or sell your home.