The Rule Change That Could Reopen the Door for Veterans Who Were Told No

If collections on your credit report have been keeping you from pursuing a VA loan this is the update worth reading carefully. The VA updated how collections are handled in the qualification process and the changes favor veterans in meaningful and immediate ways.

A no you received from a lender based on collection accounts may no longer be accurate today.

What Changed on Medical Collections

Medical collections and charged-off medical accounts are no longer counted against VA loan applicants. Not in qualifying ratios. Not in residual income calculations. They are simply removed from the equation entirely.

This is significant because medical collections are among the most common derogatory items on credit reports and they frequently appear on files belonging to veterans who have otherwise responsible financial histories. The presence of a medical collection was previously a factor that could complicate or derail a VA loan application. Under the updated guidelines it is no longer a factor at all.

How Non-Medical Collections Are Handled

For non-medical collections without an established monthly payment lenders can use five percent of the outstanding balance in the qualifying ratio calculation rather than a higher assumed payment. As Will Merritt highlighted this is where many veterans do not realize the full picture of what is available to them.

The VA does not require veterans to pay off collections as a condition of qualifying for a VA loan. The total credit picture is what matters to the evaluation rather than a single derogatory item being treated as a disqualifying event.

What This Means for Veterans Who Were Previously Declined

A denial from a lender in a prior year was based on the guidelines that existed at that time. Guidelines change. A veteran who was told no based on collection accounts under the old framework may qualify today under the updated rules.

That previous no is not a permanent verdict. It is a data point from a moment in time that may no longer reflect the current state of the guidelines or the current state of the veteran's overall credit picture.

A Note for Realtors

Will Merritt flags this specifically for real estate agents working with veteran buyers. If a client came to you previously and was told their VA loan was not going to work because of collections it is worth reconnecting and having that conversation again. The rules that produced that outcome may have changed in their favor.

Reach out to Will Merritt to find out what a veteran buyer actually qualifies for under today's updated VA guidelines. Do not let an old no stand in the way of a benefit that was earned through service.

Sources

VA.gov
MilitaryOneSource.mil
MortgageNewsDaily.com
ConsumerFinancialProtectionBureau.gov
Investopedia.com