VA loans are classified as qualified mortgages under federal consumer protection rules. Here is what that designation actually means, which risky features it screens out, and why it matters for veterans and service members buying homes in Colorado Springs.
VA Change 47: New Math for Unpaid Non-Medical Collections
The short answer: On August 24, 2026, VA issued Change 47 to Pamphlet 26-7, the VA Lender’s Handbook. It rewrites the monthly payment a lender must count for an unpaid non-medical collection account that has no payment arrangement: instead of counting 5% of the balance as the monthly obligation, lenders now count 5% of the balance divided by 12. On a $6,000 collection, that is the difference between a $300 counted payment and a $25 one. Medical collections were not touched — VA already lets lenders disregard them entirely when they have not become a judgment or lien.
Last updated: August 25, 2026 — reflects VA Pamphlet 26-7, Change 47. Figures are general examples from the published handbook text; confirm current requirements with your loan officer.
What changed in the VA Lender’s Handbook
VA announced the edit in Transmittal of Change 47, dated August 24, 2026. The change lands in Chapter 4 (Credit Underwriting), Topic 7, in the subsection on non-medical collection accounts, and it is one surgical edit: the phrase “divided by 12” was added to the end of one sentence. The rule now reads: “Non-medical collection accounts without established payment arrangements are to be included with a calculated monthly payment using 5% of the outstanding balance of the collection divided by 12 months.”
VA describes the edit as correcting “a minor inconsistency in account payment calculations” in Chapter 4 — and that framing is accurate. The handbook already used the same divided-by-12 construction for its student-loan threshold formula, which sets its threshold at “five percent of the outstanding balance divided by 12 months.” Before Change 47, the collection-account sentence was missing those three words, so a literal reading counted the full 5% of the balance as a monthly payment. The updated text is live in Chapter 4 of the VA Lender’s Handbook on VA’s KnowVA portal.
The old math vs. the new math
Two things have not changed about when this formula applies. If a collection account is listed on the credit report with a minimum payment, the lender counts that minimum payment — no formula involved. And the formula only touches non-medical collections: identifiable medical collections that have not been reduced to a judgment or lien can be disregarded entirely. The formula is for the in-between case — a non-medical collection with no established payment arrangement.
Here is what the same three balances look like under each version of the text.
| Collection balance | Old counted payment (5% flat) | New counted payment (5% ÷ 12) |
|---|---|---|
| $3,000 | $150.00 per month | $12.50 per month |
| $6,000 | $300.00 per month | $25.00 per month |
| $12,000 | $600.00 per month | $50.00 per month |
General example applying the handbook formula to sample balances. Individual loan files vary — confirm current figures with your loan officer.
The arithmetic is simple: the new counted payment is exactly one-twelfth of the old one. For a Veteran carrying a few thousand dollars of old non-medical collections, the monthly figure a lender must hold against the file shrinks to one-twelfth of what the old text implied.
Why a smaller counted payment matters
Unpaid non-medical collections are treated as part of the borrower’s overall credit history, considered as open, recent credit — and the handbook is explicit about where the counted payment goes. The counted payment lands in your debt-to-income ratio, which compares monthly obligations against gross monthly income. It also lands in residual income, VA’s other affordability test. Both calculations run on VA Form 26-6393, Loan Analysis, and the same treatment applies when a file runs through an Automated Underwriting System.
A $300 counted payment can be the difference between ratios that clear and ratios that need explaining. A $25 counted payment rarely moves either test. That is the practical effect of Change 47: fewer Veteran files where an old $6,000 collection counts twelve times as large on paper as the handbook’s own formula logic supports. VA itself does not set a minimum credit score — many lenders apply their own overlays — so the counted payment and the overall credit picture carry real weight.
What Change 47 does not change
The edit is three words of arithmetic, not a softening of VA credit policy. Everything else in the collections framework still applies:
- Medical collections stay disregarded. Lenders may disregard identifiable medical collections and medical charge-offs that have not been reduced to a judgment or lien — no payoff required, and lenders do not need explanation letters for them.
- Payoff is still not automatically required. Isolated non-medical collections do not necessarily have to be paid off as a condition for loan approval, and VA does not require payoff before closing when the borrower’s overall credit is acceptable.
- The underwriter still has to address it. An underwriter must address unpaid non-medical collections with an explanation on VA Form 26-6393 and justify why the positive factors outweigh that negative history.
- A pattern of collections still needs re-established credit. Borrowers with a history of such accounts should have re-established satisfactory credit — generally 12 months of satisfactory payments after the last derogatory item was satisfied.
- Judgments follow a stricter rule. A balance reduced to judgment by a court must either be paid in full or be on a repayment plan with a history of timely payments.
What Veteran buyers should do now
If collections have been the thing holding your file back, this is worth a fresh look:
- Pull your credit report and sort the collections. Separate medical from non-medical, and note which non-medical accounts list a minimum payment — those are counted at the listed payment, not the formula.
- Run the new math on the rest. Multiply each remaining balance by 5%, then divide by 12. That is the monthly figure a lender counts against your ratios under the updated text.
- Think before you pay anything off. Whether paying off a collection before you apply actually helps your file is a separate decision with trade-offs of its own. The handbook itself notes that paying off unpaid or untimely debts after credit acceptability is questioned does not, by itself, erase the record of late payment.
- Have a professional run both tests. Collections and medical debt raise their own set of questions on any mortgage, not just VA loans. A loan officer who works VA files daily can run the debt-to-income ratio and residual income numbers with the updated formula before you shop.
Frequently asked questions
Do I have to pay off collections to get a VA loan?
Not automatically. Isolated non-medical collections do not necessarily have to be paid off as a condition for loan approval, and VA does not require payoff before closing when the borrower’s overall credit is acceptable. The underwriter does have to address the accounts with an explanation on VA Form 26-6393 and justify the approval. Judgments are stricter: paid in full or on a repayment plan with timely payments.
How do medical collections count on a VA loan?
Generally, they don’t. Lenders may disregard identifiable medical collections and medical charge-offs that have not been reduced to a judgment or lien. They do not have to be paid off as a condition for approval, and lenders do not need to obtain explanation letters for them.
How is the monthly payment on a collection account calculated now?
If the credit report lists a minimum payment, the lender counts that payment. If there is no established payment arrangement, Change 47 sets the counted payment at 5% of the outstanding balance divided by 12 months. On a $3,000 balance that is $12.50 per month; before the change, the text read as a flat 5%, or $150 per month on the same balance.
Does the change affect residual income too?
Yes. The handbook counts unpaid non-medical collections in both the debt-to-income ratio and the residual income calculation on VA Form 26-6393, and the same treatment applies in an Automated Underwriting System. A smaller counted payment leaves more room in both tests.
719 Lending Inc. is a private mortgage broker and is not affiliated with, or acting on behalf of, the U.S. Department of Veterans Affairs (VA) or any government agency. VA program rules are set by VA and are subject to change; the figures above are general examples based on the published handbook text — confirm current requirements and your eligibility with your lender.
719 Lending Inc., NMLS #1601989 · Equal Housing Opportunity · This article is educational only, is not a commitment to lend, and not all applicants will qualify.
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