couple points.
Paying off the loan will do nothing to increase score unless it was a revolving account. A car loan is not. The bank that had the loan will behappy, but as far as credit goes, it will not help you in any way nor decrease your DTI liabilities.
Paying off the collection may lower your credit score becuase they may update DOLA. In that case, it would get factored heavier into the mix by FICO and will count against you more.
When the new car loan pops up it will lower your score a little bit for the inquiry, new account, and the lower average age of accounts. Be careful because alot of (if not most) lenders are now running credit reports at close and it looks like you could have several items possibly about to hit your FICO score (initial home loan inquiry, new car loan, the collection if you pay it) Even if you are above the limit by a comfortable amount, new credit mixed with a lowering of FICO scores alone can make an underwriter jumpy. They may want to see the car loan established to prove you can afford it and get a new mortgage, etc. Especially if FICO takes a few dings when they go to pull it near close.
Also, sob story will not help. The underwriter will look at the file from a totally unbiased point of view. You want to stay out of their way as much as possible (while providing everything they ask for immediately with no fuss) or they may tend to become a bit biased about your file. They have hundreds of files on their desk or waiting for them. Anything you try to throw at them that is unnecessary is at least a distraction and at most an annoyance to them. Good stories will often give you a leg up when bidding in a home against other buyers, but not in the loan process.
And yeah, it is a pretty intricate game as you said.
