Big VA Loan Guideline Change
BIG VA LOAN GUIDELINE CHANGE
From: Gregg Pechmann with Ross Mortgage
This is a HUGE win for VA borrowers.
VA has updated its guidance in the VA Lenders Handbook, VA Pamphlet 26-7, Chapter 4, regarding how non-medical collections are calculated.
Previously, lenders could be required to count 5% of the outstanding collection balance as a monthly payment when qualifying the borrower.
Under the updated guidance, the calculation is now:
5% of the outstanding non-medical collection balance ÷ 12 months
That is a massive difference.
For example, let’s say a veteran has $10,000 in non-medical collections.
Under the previous calculation:
$10,000 × 5% = $500/month
Under the new calculation:
$10,000 × 5% ÷ 12 = approximately $42/month
That could make a significant difference in a veteran’s debt-to-income ratio and ability to qualify for a home.
The calculation is now much more similar to how VA handles certain student loan payments.
And an important reminder: Medical collections do not require a monthly payment to be counted.
This change is already reflected in VA Pamphlet 26-7.
For veterans who have collections on their credit report and were previously having trouble qualifying, this could be a game changer.
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