Colorado Springs VA Loan, 500 Credit Score: How We Closed This Veteran’s Manual Underwrite

As of Q4 2026 (October 2026): VA sets no minimum credit score. Lenders judge credit by the overall pattern of how bills are paid. Collection accounts do not have to be paid off if the borrower is otherwise a satisfactory credit risk, but court judgments must be paid before approval. Credit is generally re-established after 12 months of on-time payments following the last late payment (38 CFR 36.4340(g)).

The hard rule that gets ignored.

A pre-approval is not a green light to push the limit of what a borrower can carry. Some loans should not be written even when they technically qualify. That is a loan officer decision, not an underwriter decision. My job is to help a veteran land in a better financial place than where she started — not to push a number through because she wants the house.

What the 100% VA disability rating did for this file.

Three things, each of them material:

• VA funding fee not charged. A veteran who gets VA disability pay for a condition tied to service pays no funding fee (a one-time fee paid to VA). On a new construction VA purchase with $0 down, that saves 2.15% to 3.3% of the loan amount.
• Tax-free disability income counted at 125%. Once we confirm your disability income is not taxed, we may count it at 125% of the real amount. For example, $1,000 a month would count as $1,250. This only applies when we figure how much of your monthly income goes to debt payments (your debt-to-income ratio). The money left over each month after your bills still uses your real income. VA calls this a tool for people who clearly qualify.
• Counts toward residual income. VA residual income — the dollars left in the pocket after every fixed monthly expense — was a key compensating factor on this file. The disability payment carried the residual number well above the West region threshold for her family size.

Tie every late payment to a documented event.

For each delinquent month on her credit report, we matched the missed payment to the life event that caused it — her brother’s illness and death, the pregnancy loss, her husband’s job gap, the cost of international custody travel. Each event had paper behind it. Nothing was an unsupported letter of explanation.

Stabilize active accounts and set up plans on the rest.

The past-due card was brought current. The charged-off card was placed on an automated payment plan. The story underwriting saw was not chaos. It was stabilization — past-tense problems being resolved while the file was in motion.

Match the same square footage to a lower price point.

We worked with the builder to find a floor plan with the same usable space at roughly $100,000 less. The buyer kept what she actually wanted — the size, the builder, the Colorado Springs neighborhood — and shed the price tag her budget could not safely carry.

Direct the builder concessions where they move the file.

The builder incentive was split between paying off her remaining consumer debt at closing and buying down her interest rate — both allowed under VA’s 4% seller concession cap. Sale proceeds from her old house finished cleaning up the rest. The combined effect dropped her total monthly outflow below where she had been a year earlier.

“The most valuable thing a loan officer can do for a veteran with a 517 credit score and a year of life events is not push the maximum loan they qualify for — it is build the deal that actually leaves them better off than where they started.”

Can you get a VA loan with a 500 credit score?

Yes, in many cases. VA does not set a minimum credit score at the program level — lender overlays determine the floor. Lenders that operate VA loans without a minimum credit score overlay, like PRMG, routinely underwrite VA files in the low 500s, including the case described in this post, which closed at a 517 score. The underwriting question is not the score itself. It is the full picture of why the score got there and what has changed since.

What credit score is needed for a VA loan if I have late payments?

VA does not set a lowest credit score. Late payments affect approval through paperwork, not through the score. VA has no set number of late payments that stops a loan. VA looks at your overall pattern, and house payments often count the most. If you were 30 days late on a mortgage more than once in the past year, you explain it in writing. On a hand-reviewed file, you explain other negative credit in writing too. A score cutoff is an extra rule some lenders add on top of VA rules (an overlay). That rule, or the lack of one, decides if your score works at that lender.

What qualifies as extenuating circumstances for a VA loan application?

VA’s credit rules do not use that term. VA’s words are “circumstances beyond the control of the borrower.” VA’s examples are a job loss, long strikes, and medical bills insurance did not pay. Other events, like the death or serious illness of a close family member, may also fit. For a bankruptcy, a divorce usually does not count as out of your control. The cause must be verified. That means papers like death certificates, medical records, or job records, not just a letter. To qualify 1 to 2 years after a Chapter 7 bankruptcy or a foreclosure, you also need new credit paid on time since.

How much seller concessions are allowed on a VA loan?

A seller, or a builder on a new home, can pay up to 4% of VA’s reasonable value in seller concessions on a VA loan. These are extras the seller pays for you beyond normal closing costs. They include extra points to buy your rate down more than normal, paying off your debts at closing, paying the VA funding fee (a one-time fee paid to VA), and paying your taxes or insurance ahead of time. Points are a fee you pay up front to get a lower rate. Normal closing costs and normal points paid by the seller do not count toward the 4% cap. What is normal depends on the market and your credit. VA sets the 4% cap in Chapter 8 of its lender handbook.

How do I qualify for a VA mortgage with a 100 percent disability rating?

A 100% VA disability rating unlocks three significant qualifying advantages. The VA funding fee is waived entirely — a savings of 2.15% to 3.3% of the loan amount depending on prior VA use. Non-taxable disability income can be grossed up by 125% for qualifying ratios on most VA files. And the disability payment counts toward VA residual income, which is a primary underwriting metric. Qualifying is otherwise the same — credit, income, asset documentation, and a Certificate of Eligibility from the VA.

What are the eligibility requirements for a VA loan in Colorado Springs?

VA loan eligibility in Colorado Springs follows the same VA program rules as anywhere else: a Certificate of Eligibility (COE), sufficient entitlement, owner-occupancy intent, and underwriting approval based on credit, income, and residual income. Colorado Springs is a federal entitlement-eligible market with no county-specific VA loan limits for borrowers with full entitlement. Local lender overlays vary — work with a lender that operates VA loans without a minimum credit score overlay if your file is non-standard.

How much house can I afford with a VA loan?

What you can afford is not the same as the biggest loan we will approve. VA looks at two numbers. One is how much of your monthly income goes to debt payments (your debt-to-income ratio). VA calls it a guide and sets no top limit. Over 41%, a supervisor signs off on the file’s strengths, unless money left over each month beats VA’s chart by 20%. The other is the money left over each month after your bills. VA says this one matters more. VA has a chart for it based on family size, region, and loan size. Neither number is an automatic yes or no. But too little money left over can still be a reason to turn down a loan. The right number to look at is your total monthly spending: mortgage plus taxes, insurance, utilities, and any other debt. Measure that against your take-home pay and the cushion you want to keep. The biggest loan you qualify for is rarely the right loan to take.

How do I get the VA funding fee waived with a disability rating?

The VA funding fee is automatically waived for any veteran receiving VA disability compensation, regardless of disability percentage. To apply the exemption, the lender pulls your Certificate of Eligibility (COE), which lists your funding fee exemption status. If your COE has not been updated to reflect a new disability rating, the VA can update it through the lender’s Web LGY portal. The funding fee is then removed from the loan amount, or refunded at closing if it was prepaid.

Written by J.D. Peck.

Area Manager and Mortgage Loan Originator with The JD.Mortgage Team at Paramount Residential Mortgage Group (NMLS #75243). NMLS #314883. Based in Colorado Springs, Colorado. 25+ years of mortgage experience, 3,100+ loans closed, Scotsman Guide Top Originator 2026. Lending in 49 states. Published May 29, 2026.