FHA gives you a precise ladder of ratios and factors. VA gives an underwriter a longer list and more judgment, plus two rules about what does not count that matter more than the list itself. If you are a Veteran with a marginal file, those two rules are where to start.
A factor has to be a strength, not a box ticked. VA says valid compensating factors should represent strengths rather than mere satisfaction of basic program requirements. Having enough money to close, or meeting the residual income guideline, is not a compensating factor. It is just qualifying.
A factor has to fit the weakness. It should logically be able to compensate for the specific problem in the file. VA's own example: significant liquid assets may compensate for a residual income shortfall, whereas long-term employment would not.
And one hard limit sits above both: compensating factors cannot be used to compensate for unsatisfactory credit. They matter most where a file is marginal on residual income or debt-to-income, not where the credit history itself is the problem.
VA lists these as compensating factors, and says the list includes but is not limited to them:
Excellent credit history, conservative use of consumer credit, minimal consumer debt, a low debt-to-income ratio.
Significant liquid assets, a sizable down payment, equity in a refinance, and high residual income.
Long-term employment, satisfactory homeownership experience, and little or no increase in shelter expense.
Military benefits, tax credits for child care, and the tax benefits of home ownership.
VA uses a debt-to-income guideline of 41 percent, and a file above it needs closer scrutiny and a documented justification - which is where these factors come in. The exception is a file whose residual income exceeds VA's guideline by at least 20 percent. How that works, with the actual tables, is on VA debt-to-income.
If you are comparing programs, FHA's factors are narrower but more mechanical. Its two most-used ones are on cash reserves and minimal payment increase, and how FHA's factors combine is on how factors stack.
Source: VA Pamphlet 26-7, Lender's Handbook, Chapter 4 Credit Underwriting, Topic 10(d) Compensating Factors (current version on KnowVA, updated August 26, 2026). Program rules change; confirm before relying on them. Not a commitment to lend.
Tell us about your income, your savings and your history. We will tell you which strengths your file can document, what needs shoring up, and which lenders fit - straight answers, no pressure.