A VA loan is the only mainstream mortgage with no down payment, no monthly mortgage insurance, no minimum credit score set by the guarantor, and that allow a purchase during an active Chapter 13 bankruptcy. This article explains the underwriting, because the underwriting is where veterans with a bankruptcy, a foreclosure, or a low score either get approved or get turned away by a lender that does not know the rules.
VA and FHA loans for borrowers in or just out of Chapter 13 are the files Alpine Mortgage closes most often, and as an attorney I read the plan and the trustee’s conditions before we submit anything. For eligibility, the Certificate of Eligibility, entitlement, and loan types, see our VA home loans page. This article covers how the VA judges credit, income, and prior credit events.
Key points
- The VA sets no minimum credit score. Lenders add their own floors, usually 580 to 620, so the lender you choose matters more than on any other loan type.
- A veteran in an active Chapter 13 can buy after 12 months of plan payments made as agreed, with the trustee’s permission. A completed plan counts as reestablished credit with no further wait.
- VA qualifies on residual income, the cash left after the house payment and debts, rather than a hard debt-to-income cap. A New Jersey family of four needs $1,025 a month left over, or $1,230 if the ratio runs above 41 percent.
What Makes VA Underwriting Different
VA guaranteed 528,340 loans worth $206 billion in fiscal 2025, including 323,832 purchases, and 74 percent of those purchases closed with no down payment (VA Annual Benefits Report, FY2025). The program can do that because the VA guaranty replaces both the down payment and mortgage insurance, and because the VA’s credit standards were written around a veteran’s ability to pay rather than a score.
The funding fee instead of mortgage insurance. Most borrowers pay a one-time funding fee, usually financed into the loan: 2.15 percent of the loan amount on a first use with less than 5 percent down, 3.3 percent on a later use, 1.5 percent with 5 to 9.99 percent down, 1.25 percent with 10 percent or more down, and 0.5 percent on an IRRRL refinance (VA.gov). Veterans receiving compensation for a service-connected disability (any rating), those entitled to it but drawing retirement pay instead, surviving spouses receiving DIC, and active duty Purple Heart recipients pay nothing. See our VA funding fee page for the full table.
Residual income instead of a hard ratio. VA’s benchmark debt-to-income ratio is 41 percent, but a file above it is not declined; it must show residual income at least 20 percent above the regional guideline. Residual income is what remains after the full house payment, all debts, federal and state taxes, child care, and an allowance for maintenance and utilities. The guideline for loans of $80,000 or more:
| Family size | Northeast (NJ, NY, PA, CT) | South (FL, GA, TX) | Midwest (OH) | West (CA, CO) |
| 1 | $450 | $441 | $441 | $491 |
| 2 | $755 | $738 | $738 | $823 |
| 3 | $909 | $889 | $889 | $990 |
| 4 | $1,025 | $1,003 | $1,003 | $1,117 |
| 5 | $1,062 | $1,039 | $1,039 | $1,158 |
Add $80 for each family member beyond five, up to seven. Household size counts everyone in the home, not only dependents on the loan. In practice, residual income is what approves a marginal file: a veteran with a 45 percent ratio and $1,600 left over each month is a stronger file than one with a 38 percent ratio and $700 left over.
No minimum credit score. The VA’s own training for lenders states it plainly: “No minimum credit score required” (VA lender training, credit underwriting). The floors veterans run into are lender overlays, commonly 620 and sometimes 580. Alpine places VA loans with wholesale lenders that underwrite to the VA’s standard rather than a score, and we underwrite manually when the automated system will not approve.
VA Loans During and After Bankruptcy
Active Chapter 13
The VA permits a purchase while the repayment plan is still running. The rules are short: one year of plan payments made as agreed, permission from the trustee or the bankruptcy court to take on the new debt, and the plan payment counted in your ratios. If the plan has been completed, VA deems credit reestablished. Lenders that decline these files are applying their own policy, not VA’s. What the file needs in practice is 12 months of on-time trustee payments with no late mortgage or rent payments since filing, a written explanation of what caused the filing, verified income that supports both the plan payment and the mortgage, and a manual underwrite. Trustee or court approval usually takes two to six weeks and comes through a motion filed by your bankruptcy attorney, so start it as soon as you are under contract or, better, before. Our Chapter 13 mortgage page walks through the approval process step by step.
Chapter 7
The standard wait is two years from the discharge date. VA allows one year when the bankruptcy was caused by circumstances beyond the veteran’s control, such as a medical event or a job loss, and the veteran has documented reestablished credit since. If the home itself was included in the Chapter 7, the clock runs from the later of the discharge date or the foreclosure sale date.
Foreclosure, Short Sale, and Deed in Lieu
A foreclosure carries the same two year wait as a Chapter 7, with the same one year exception for circumstances beyond your control. A short sale or deed in lieu has no VA waiting period at all, although any late payments on that mortgage are weighed in the credit review. One VA-specific point: if the foreclosed loan was a VA loan and the VA paid a claim, that portion of your entitlement is used until the loss is repaid, which can limit the loan amount you can get with no down payment. Our guide to using a VA loan more than once explains entitlement math.
How VA compares with the alternatives after a credit event:
| Event | VA | FHA | Conventional (Fannie Mae) |
| Active Chapter 13 | 12 months of plan payments plus trustee approval | 12 months of plan payments plus trustee approval | Not permitted during the plan |
| Chapter 13 discharged | No wait | No wait (manual underwriting inside 2 years) | 2 years from discharge |
| Chapter 7 discharged | 2 years (1 with documented circumstances) | 2 years (1 with documented circumstances) | 4 years (2 with extenuating circumstances) |
| Foreclosure | 2 years (1 with documented circumstances) | 3 years | 7 years (3 with extenuating circumstances) |
| Short sale or deed in lieu | No wait | 3 years | 4 years (2 with extenuating circumstances) |
Collections, Judgments, and Medical Debt Under VA Rules
VA revised Chapter 4 of its Lenders Handbook in late 2023, effective for applications after January 1, 2024. Medical collections and charged-off medical accounts are no longer considered in the ratios or in the credit decision. Non-medical collections with no listed payment are counted at 5 percent of the balance (VA Pamphlet 26-7, Change 37 summary). Collections do not have to be paid to close a VA loan; the underwriter weighs them against the rest of the credit history. Judgments are different: an unpaid judgment generally has to be satisfied or under a documented repayment arrangement, and delinquent federal debt, such as a defaulted federal student loan or an unpaid claim on a prior VA or FHA loan, appears on the CAIVRS check and must be resolved before closing. Our article on collections, charge-offs, and judgments covers what has to be paid under each program.
A Residual Income Example
A veteran in Bergen County, New Jersey, married with two children, earns $9,000 a month gross. The proposed house payment is $3,400 including property taxes, the Chapter 13 plan payment is $600, a car loan is $450, and federal and state withholding plus FICA come to $1,900. VA also deducts a maintenance and utility allowance, which lenders figure at 14 cents per square foot per month, or $280 on a 2,000 square foot home. That leaves $9,000 minus $6,630, or $2,370 of residual income. The guideline for a Northeast family of four is $1,025, and because the debt-to-income ratio is 49 percent, above the 41 percent benchmark, the file needs 120 percent of that, or $1,230. At $2,370 it passes with room to spare. The same borrower would be declined by an automated conventional system on the ratio alone, and would be declined by a VA lender with a 620 overlay if the score were 600. Neither decline is the VA’s rule.
How Alpine Handles a VA File With a Credit Event
- File review. We read the credit report, the bankruptcy schedules or plan, and the discharge or dismissal order, and tell you which waiting period applies and what the residual income math looks like before you shop.
- Certificate of Eligibility. We pull it through the VA portal in most cases; you do not need to request it yourself.
- Trustee approval, if the plan is active. We give your bankruptcy attorney the loan terms needed for the motion to incur debt and coordinate the timing with your contract.
- Manual underwriting. The underwriter documents the 12 month payment history, the explanation letter, residual income, and any compensating factors such as reserves or a long job history.
- Closing. No down payment, the funding fee financed unless you are exempt, and in New Jersey and New York, your attorney at the table.
VA Loans in Alpine’s Ten States
Alpine originates VA loans in California, Colorado, Connecticut, Florida, Georgia, New Jersey, New York, Ohio, Pennsylvania, and Texas, and the residual income region follows the property: Northeast for New Jersey, New York, Pennsylvania, and Connecticut; South for Florida, Georgia, and Texas; Midwest for Ohio; West for California and Colorado. Two things change the math by state. High property taxes in New Jersey, New York, and Texas raise the house payment inside the residual calculation, so the same income supports a smaller loan there than in Ohio or Georgia. In the other direction, New Jersey, Texas, Florida, and several other states reduce or eliminate property taxes for veterans with a service-connected disability rating, which lowers the payment the underwriter counts. With full entitlement there is no VA loan limit; with partial entitlement, the county conforming limits set the no-down-payment ceiling. Current pricing is on our VA loan rates page.
Sources
- VA.gov, VA funding fee and loan closing costs (rate chart effective April 7, 2023). va.gov
- Department of Veterans Affairs, Annual Benefits Report FY2025, Loan Guaranty. benefits.va.gov
- VA Loan Guaranty Service, lender training on credit underwriting (bankruptcy, foreclosure, no minimum credit score), 2023. benefits.va.gov
- VA Pamphlet 26-7, Lenders Handbook, Chapter 4 (credit standards, residual income); Change 37 revision summary, November 2023. tenaco.com
- VA residual income table by region and family size, loan amounts of $80,000 and above. military.com
