Got Different Advice RE: Collections from 2 different LO's

[Amatiq]

Last fall I had a lending service pull my credit report to tell me what to clean up in order to get a mortgage this spring. They advised me emphatically NOT to pay off my old collections, as that would cause them to update and knock me out of consideration for 6 months to a year. Instead, they suggeted paying down my CC's and allowing one of my credit lines to mature. 

Today I had my credit report pulled by a different company. This LO told me just as emphatically that I had to pay the collections off and that it would improve my score and DTI ratio. Other than that she thought I was in pretty good shape if I could bump my score about 15 pts. When I told her what the other company had said, she looked confused and said she didn't know why they would suggest that. 

So what gives. I have the funds to pay off the collections, that's not an issue. I really, really need to move within 6 months or less (less is far preferable), and so I am wary of doing anything to delay my ability to get a loan any further. If I have to rent, I will eat up my savings for downpayment and closing pretty quickly, as short term leases with a dog around here are exorbitant. 

[ShanetheMortgageMan]

There is some debate if paying off older collections will "update" them and drop your scores.  I've seen that happen personally, but I've read others here claim that shouldn't happen.  If you are qualifying for FHA and your total collections are $2k or more (medical collections excluded), then either they'll have to be paid, on a payment plan, or 5% of the total balances will be used as a monthly payment.  If you can absorb that payment in your DTI and still qualify, and your score is pretty good, then I'd recommend you not pay them and just wait until underwriting reviews.

[Amatiq]

Well, they are all medical collections, and under $2000.00. So I guess I'll just play with utilization rates to get the score where it ought to be and save my cash for closing. 

[ShanetheMortgageMan]

Since they are all medical collections they aren't counted in that guideline I mentioned, and since they are medical collections it's very unlikely an underwriter would require them to be paid.  Here is a thread that explains the details on what I was referring to.

Good plan on paying down the revolving debt to increase your scores.