A Colorado Springs couple was turned down by multiple lenders before they came to us. Their credit showed collection accounts, their debt-to-income ratio came in at 64% on paper, and one of them carried a 613 credit score. In May 2026 they closed on a new-construction home with a VA loan — and their total housing payment landed within about $75 of what they had been paying in rent. This is how the file was structured, and why “denied” from another lender does not mean “impossible.” Lending in 49 states. New York excluded.
The Setup
Here is the actual situation, anonymized:
- The borrowers are a married couple buying in Colorado Springs.
- Over the prior couple of years, one spouse fought a serious medical battle — and fully recovered.
- The years of treatment drove up expenses and strained a household budget that had been fine before.
- Their credit took real damage during that stretch, including several collection accounts.
- The recovered spouse returned to work, but had not been back long enough for that income to count in qualifying yet.
- They were renting at $2,025 a month and wanted to own.
- One borrower’s credit score sat at 613.
- On paper, the qualifying debt-to-income ratio came to 64%.
- Multiple lenders had already turned them down.
On paper, this looked like a credit problem. It was really a structure problem — and structure is something you can fix.
Why Other Lenders Said No
Three things scared off the other lenders: a 613 credit score, open collection accounts, and a debt-to-income ratio that calculated to 64%. Most lenders see those numbers and stop reading.
Here is what they missed. The VA sets no minimum credit score. A 613 is not a VA disqualifier — it is a lender-overlay problem, not a VA-guideline problem. And the 41% debt-to-income figure people treat as a hard ceiling is a guideline, not a cap. The VA’s real affordability test is residual income — the money left over each month after the mortgage and major obligations are paid. A file with strong residual income and solid compensating factors can be approved well above 41%.
That 64% was actually more conservative than their real situation. The recovered spouse had returned to work, but had not been back long enough for that income to count yet. The ratio was calculated without it. Their true household picture was stronger than the file was allowed to show.
How We Structured the Approval
Three moves turned this from a decline into a closing:
1. We documented the circumstances
A medical event that damages credit is an extenuating circumstance, not a pattern of irresponsibility — and it can be documented and explained inside the underwriting file. We built the case that showed exactly what happened and that the borrowers had recovered, financially and otherwise.
2. We used builder incentive to pay off the collections
On a new-construction VA purchase, builder incentive funds can do more than buy down a rate. We directed just over $7,000 of incentive to pay off several collection accounts. That cleared the derogatory balances and removed monthly obligations from the borrowers’ load at the same time — without the couple spending their own cash to do it.
3. We qualified on residual income
With the collections paid and monthly obligations reduced, the file’s residual income carried the approval — the VA’s actual standard for whether a borrower can afford the home. Strong residual income plus the documented circumstances supported the file at a debt-to-income ratio that no automated overlay would have touched.
The 613 was never the problem. The collections and the ratio were — and both of those are structure problems, not dead ends.
The Result
They closed on their new-construction home in Colorado Springs in May 2026. Their new total housing payment — principal, interest, taxes, insurance, and HOA dues — came in at just under $2,100 a month. They had been paying $2,025 in rent.
So for roughly $75 more a month than rent, they became homeowners — and walked away from the monthly payments on the debts that got paid off in the process. They came out ahead on cash flow while building equity instead of paying a landlord. And as the recovered spouse’s income seasons, their real ratios only get stronger.
Case Snapshot
Location: Colorado Springs, CO (new construction)
Loan type: VA purchase
Credit score: 613
Qualifying DTI: 64% (calculated without the recovered spouse’s income)
Collections paid off: just over $7,000, via builder incentive
Prior rent: $2,025/mo
New housing payment (PITI + HOA): just under $2,100/mo
Closed: May 2026
Other lenders: multiple declines before approval
What This Means If You’ve Been Denied
A denial from one lender is that lender’s answer — often driven by an overlay or an automated kickout, not by VA rules. Collections, a damaged score after a hard stretch, a high ratio on paper: none of those are automatic disqualifiers on a VA loan. What matters is whether the file can be structured and documented to meet the VA’s actual standards. Sometimes it can’t. Often it can — and the only way to know is to have someone actually look at the structure instead of the surface.
Questions This Case Comes Up For
Can you get a VA loan with collection accounts?
Yes. Collection accounts do not automatically disqualify a VA loan. They can sometimes be left open, paid off, or — on a new-construction purchase — paid off using builder incentive funds, as in this case. What matters is the overall file and whether the remaining obligations leave enough residual income.
Can you get a VA loan with a 613 credit score?
Yes. The VA sets no minimum credit score. A 613 may trip a lender’s overlay, but it is not a VA-guideline barrier. In this case the score was never the real issue — the collections and the on-paper debt-to-income ratio were, and both were addressed through the loan’s structure.
What is the maximum DTI for a VA loan?
There is no hard cap. The 41% figure often quoted is a guideline, not a ceiling. The VA’s real affordability test is residual income — the money left each month after major obligations. With strong residual income and documented compensating factors, files can be approved well above 41%, as this one was at a calculated 64%.
Can a builder pay off my debt to help me qualify for a VA loan?
On a new-construction VA purchase, builder incentive funds can be applied toward paying off borrower debts, not just buying down the rate. Paying off collection accounts this way can both clear derogatory balances and reduce monthly obligations — improving the file without the borrower spending their own cash.
Can I get a VA loan after a medical hardship damaged my credit?
Often, yes. A medical event that damages credit can be documented as an extenuating circumstance — a one-time hardship rather than a pattern. When the circumstances are documented and the borrower has recovered, that history can be explained inside the underwriting file rather than treated as a permanent mark.
What should I do if I was denied a VA loan by another lender?
Get a second set of eyes on the structure, not just the numbers. Many denials come from lender overlays or automated kickouts rather than VA rules. A file that one lender declines can sometimes be restructured and documented to meet the VA’s actual standards. Start with a soft credit pull that does not affect your score.
Written by J.D. Peck — Area Manager and Mortgage Loan Originator at Paramount Residential Mortgage Group, Inc. NMLS #314883. Based in Colorado Springs. 25+ years originating, 3,100+ closed loans, Scotsman Guide Top Originator 2026. This case study reflects one borrower’s circumstances and is shared with permission; details have been anonymized. It is not a commitment to lend or a guarantee of similar results — approval depends on your full financial profile and VA eligibility. Lending in 49 states. New York excluded. Closed May 2026.
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