VA Update on Non-Medical Collections: What Changed for Veterans
If you have unpaid va collection accounts’ on your credit report, this VA underwriting update may change what you qualify for.
VA recently clarified how lenders must treat non-medical collection accounts when they calculate debt-to-income (DTI) and residual income. The change is in VA Lender’s Handbook, Pamphlet 26-7, Chapter 4 (Change 47, August 24, 2026). Isolated collections still do not have to be paid off for approval. What changed is the monthly payment the lender must count when there is no payment plan.
The Old Way vs. the New Way
Old practice many lenders used: take 5% of the collection balance and treat that number as the monthly payment.
Example: $5,000 collection
$5,000 × 5% = $250 per month added to your debts
That $250 hit DTI and leftover (residual) income hard. On a tight file, it could knock a Veteran out of a price range—or out of a loan.
Updated VA guideline: if the collection has no established payment arrangement, count 5% of the balance, then divide by 12 months.
Same $5,000 collection
$5,000 × 5% = $250
$250 ÷ 12 = $20.83 per month
That is the example VA-style math. It can be the difference between qualifying and not qualifying.
What the Current VA Guidelines Say
The current VA guidelines discuss how va collection accounts’ status affects eligibility and reporting requirements.
VA still treats unpaid non-medical collections as part of your overall credit history and as open, recent credit. They must be included in:
- debt-to-income ratio
- residual income on VA Form 26-6393 (Loan Analysis)
- Automated Underwriting System (AUS) findings
Then the payment is set like this:
- Credit report shows a minimum payment
Use that minimum payment. - No payment arrangement
Use 5% of the outstanding balance ÷ 12 months.
VA still prefers collections be paid when possible. It does not require payoff before closing if overall credit is acceptable. The underwriter must explain the accounts on the loan analysis and show why the rest of the file outweighs that history. Borrowers with a pattern of collections should show re-established satisfactory credit.
Medical collections and charge-offs are handled differently. Lenders generally do not have to get explanations for those or treat them the same way as non-medical collections.
Why This Matters for What You Can Buy
A lower counted payment means:
- a lower DTI
- more residual income after the new house payment
- more room in AUS
Using the $5,000 example, dropping the counted debt from $250 to about $21 frees up roughly $229 a month in ratio capacity. That can support a higher purchase price or keep a file that was previously over the line.
It does not erase the collection. It changes how expensive that collection looks on paper.
What This Does Not Change
- Collections still show on the credit report and still affect the credit story.
- A lender can still ask for a letter of explanation.
- Some lenders add overlays—stricter rules than VA’s minimum—such as paying collections over a set dollar amount.
- Judgments and federal debts are different issues.
- If the credit report lists a real minimum payment, that payment is what gets used, even if it is higher than the 5% ÷ 12 figure.
Always have a VA-experienced lender run the file under current handbook language. Not every shop updates overlays on the same day VA publishes a change.
Quick Examples
| Collection balance | Old 5% as monthly payment | New 5% ÷ 12 monthly payment |
|---|---|---|
| $2,000 | $100.00 | $8.33 |
| $5,000 | $250.00 | $20.83 |
| $10,000 | $500.00 | $41.67 |
If your report already shows a $35 minimum on that $5,000 account, the lender uses $35, not $20.83.
Frequently Asked Questions
Do I have to pay off non-medical collections to get a VA loan?
Not automatically. VA does not require payoff when the rest of the credit file is acceptable. The underwriter must still address the accounts.
Are medical collections included in this 5% rule?
No. This payment calculation is for non-medical collections. Medical collections are treated more leniently in the handbook.
Will every lender use the new math?
They should follow current VA handbook language. Some still have company overlays. Ask specifically how they count collections with no payment listed.
Does this help refinance too?
It can, on a full-qualifying VA refinance. Streamline IRRRLs follow different rules.
Talk to a VA Lender Who Uses Current Guidelines
If you were told you could not qualify because collections inflated your monthly debts, it is worth a fresh look.
VA Loans Done Right works with Veterans every day on credit issues like collections, DTI, and residual income. We will review your report, apply the current handbook calculation, and tell you straight what you can qualify for.
Ready for a second look?
Call John Burke at 720-519-7494 or fill out the form below.
This article is for general information. It is not a commitment to lend. Guidelines can change, and lender overlays may apply. Source: VA Pamphlet 26-7, Chapter 4, Credit Underwriting, Non-medical Collection Accounts (Change 47).
