Paragon Real Estate Group
CA DRE 01844627
Foreclosure should always be your last resort.
If you can take the 20k hit on your house when you sell and still have enough to make a down payment on a larger home, do that. If you can make the payments, you might have to stay in the smaller house until you have the savings to do that. Put yourself on a very strict budget and make it work!
If you can't make your current payments, show your lender your hardship and expenses and see if they will let you do a short sale. You would still have to rent, but a short sale is better than a foreclosure.
You do not mention your cash situation.
If you can sell your house, make up the difference out of savings, and still have a down payment for your next house, you do not have an issue.
We are so used to people not having savings or income that most answers conclude you have to short sell your house, or let it go to foreclosure.