Your options to do a short sale:
1. Stay in your home and do nothing while paying your mortgage.
2. Stay in your home and not pay your mortgage and risk a foreclosure.
3. Don’t pay mortgage, bank forecloses on your home. Bad credit for 7-10 years
4. Deed in Lieu of Foreclosure: With this, you give the keys back to the bank, but the bank still reports you as a foreclosure and you still have 7-10 years of bad credit.
5. Short Sale: This is probably your best bet. Lenders have now streamlined short sales, however it still needs to be negotiated. Negotiating the deficiency is Key when attempting a short sale. Sometimes the bank will ask for a contribution. With a short sale, it is possible to buy right after the sale, but more often it is 2 years from date of short sale.
Please consult an attorney and qualified CPA for tax and legal ramifications.