You want to sell, or not.
You want to save the Realtor's commission,
you think that you can sell it for the same amount, as if you LISTED it.
You want to refinance, to a 15 years loan,
But you can't do a refinance,
mostly because you are underwater.
(you also cannot afford the costs of refinancing)
and you cannot afford the costs of fixing-up.
Have you thought about just sending an extra $100 per month and telling them to put it toward the principle?
Have you looked at a HARP refinance? This is only useful if you keep the house, but you could possibly rent the home for a while to pay down the mortgage. Just keep in mind with being a landlord, you might have big expenses still, like a roof or A/C repair. You may already have good interest rates since you recently refinanced, so HARP may not work for your situation, but worth a look.
Doing a sale by owner isn't always a good financial decision. Often, you can obtain more for your house selling with an agent than by owner, and it often exceeds the cost of the commissions. Also, if you're in Newtown now and your house is in Georgia (assuming from your location setting), you would have to rely on relatives/friends to show the home. Furthermore, if you did a short sale, then the lender would require a Realtor to list the house, but the lender usually pays the fees.
In generally, I would recommend against a short sale. It sounds like you need to talk through your situation with at least a local Realtor, and possibly a mortgage lender to get personalized advice.
Eli Givoni, Director
Short Sale Department, LLC
MARS Disclosure for General Commercial Communications
Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.