If there is sufficient equity in the new home after you purchase it, you may then be able to refinance to take cash out or get a 2nd mortgage in case refinances can't happen/doesn't make sense (and also assuming you can qualify for a 2nd mortgage).
Typically in order to use an appraised value that is higher than the purchase price on a cash out refinance you'll have to have owned the home for 1 year, but that isn't always the case (Fannie Mae & Freddie Mac do not have seasoning requirements to use a new appraised value, but many lenders impose 12 months), but you do have to meet the continuity of obligation requirement for cash out (which is 6 months from when you purchased it).
There is no requirement that says you can't purchase a new home and then short sale your old home either, and while that is what you are looking to avoid, it isn't illegal or prohibited. If you can't sell your old home then you may consider becoming a landlord and putting a renter in there until home value's rebound, or if things go well and you aren't taking a significant loss on the property then you may want to just continue having renters pay off that mortgage.
Have you looked into seeing if you can qualify for a new mortgage while you still have your current one? Is that something you'd even want to do?
There are few things you could do but rarely would you end up with instant equity in a short sale purchase. There is a slight discount for the risk that is being assumed by the buyer but they sell for close to their market value.
You could rent your house and then be able to move forward. Most mortgage companies consider the obligation satisfied if the rent is 110% of the mortgage payment. That's just one thought - please give me a call if you want to hash out some ideas.
When a lender approves you for a mortgage, it will be based on a percentage of the loan amount against the purchase price or appraised value - whichever is lower.
Further, if you short sale your current home, you will be barred from another mortgage for at least 2 years (if going FHA). Lenders, however, can impose stringer time frames - meaning, your wait may even be longer.
Additionally, you need your lender's approval to short sale your home.
In order to be approved for a short sale, you have to meet certain requirements such as:
- you are unable to refinance or don't qualify for a loan modification
- you are behind on your mortgage payments
- you are facing financial hardship
- you owe more than your home is worth and
- you can not sell your home at a price greater than your mortgage debt.
If your lender feels that you are entering into a short sale simply to get out of your current home so you can purchase another one at a lower price, then they will not approve your request for a short sale.
You should speak with an attorney who is experienced with short sale transactions before contemplating such a move.