VA Loan Manual Underwriting: Approvals with Low Credit, Late Payments, or Collections

Many veterans are told they can’t get a VA loan because of credit. But here’s the truth: the VA has no minimum credit score. Denials often come from bank overlays, not the VA itself. That’s where manual underwriting changes everything. If you’ve had late payments, collections, or life events that hurt your credit, manual underwriting gives you a second chance. The JD.Mortgage team at PRMG specializes in these cases nationwide. Reach out today if you’ve been told “no.”

What Is Manual Underwriting?

Most lenders rely on a computer system (AUS) to approve or deny. If AUS says “refer” or “caution,” the file can still move forward with a human underwriter. This is manual underwriting. Instead of focusing only on credit scores, the underwriter looks at the whole story: your income, debts, residual income, rent history, and any extenuating circumstances that explain past problems.

No Minimum Credit Score with VA

The VA does not set a minimum credit score. Many lenders add their own rules, called overlays. This is why you may have been denied elsewhere. In manual underwriting, veterans can qualify with very low scores or even no score at all, if the rest of the file is strong. Non-traditional credit, like rent and utility history, can also be used when a FICO score is missing.

What About Late Payments or Collections?

Manual underwriting allows a fair review, even if your credit history isn’t perfect:

• Late payments can often be explained, especially if tied to a one-time event like illness, deployment, or divorce.
• Collections don’t always have to be paid off to qualify. Many times, the VA allows them to remain if they’re not impacting your ability to repay.
• Bankruptcies or foreclosures may not be deal-breakers once the required waiting period is over and you’ve rebuilt stability.

The focus is on your ability to repay today, not on punishing you forever for the past.

Extenuating Circumstances Matter

Life happens. The VA understands this. If your credit was damaged by deployment, medical hardship, job loss, or other circumstances, you may still qualify. With manual underwriting, you can provide a Letter of Explanation (LOE) to show what happened and why it won’t affect your future payments.

Debt-to-Income Ratios in Manual Underwriting

VA prefers 41% DTI, but it’s not a hard stop. With manual underwriting, veterans may qualify with DTIs beyond 60% if they have strong residual income and compensating factors. This flexibility is unique to VA loans.

Compensating Factors That Strengthen Your File

Manual underwriting looks for positives that balance out risks. These are called compensating factors. Examples include:

• Residual income well above VA minimums
• 2+ months of mortgage payments in savings
• 12 months of on-time rent or housing payments
• Stable or rising income
• Minimal “payment shock” when moving from rent to ownership

Alternative Credit Options

If you don’t have a score, VA allows non-traditional credit to show payment history. This can include:

• Rent receipts or verification
• Utility bills
• Cell phone bills
• Insurance or childcare payments

Strong alternative credit can replace a missing FICO score, proving you’re responsible even if the bureaus don’t show it.

FAQs: Manual Underwriting on VA Loans

1) Can I get a VA loan with no credit score?

Yes. The VA does not require a minimum score. Manual underwriting allows approvals with no score using alternative credit history.

2) What if I have late payments or collections?

You may still qualify. Manual underwriting reviews your overall ability to pay, not just old marks. Collections don’t always need to be paid off.

3) Do bankruptcies or foreclosures disqualify me?

No, not always. Once waiting periods are met, you may qualify again, especially if you’ve shown stable housing and income since.

4) What counts as extenuating circumstances?

Events like illness, deployment, divorce, or job loss can explain credit challenges. A Letter of Explanation helps the underwriter see the context.

5) How high can my DTI be?

Sometimes beyond 60%, if residual income and compensating factors are strong.

6) Why do most lenders avoid manual underwriting?

Because it takes more work. Many lenders add overlays to avoid it. The JD.Mortgage team at PRMG does the extra work to help veterans qualify.

The Bottom Line

Manual underwriting gives veterans with low credit, late payments, or collections a fair chance at homeownership. If you’ve been denied, it doesn’t mean you don’t qualify. It often means the lender used overlays the VA doesn’t require. Get your VA loan reviewed the right way with a team that specializes in manual underwriting.