There is not a clear, easy answer to your question. If â€œbiggerâ€ was the answer then why not just have one big room? If more rooms was the answer then why not have lots of small rooms?
A house has to have balance. If you have a large house it may provide space for more rooms â€“ and you seem to be focusing on bedrooms â€“ or decent size. If you want to combine two bedrooms which are small in order to have a larger bedroom suite and you still have four other bedrooms â€“ assuming they are not small â€“ you should not suffer too much in value. But, now you have eliminated buyers who must have one more bedroom than you will have.
Will you house suffer in value compared to a similar house that has one more bedroom? I think there are other aspects of the house that also have to be considered. Is it a large house or simply a house with a lot of smallish bedrooms? Will the resulting change make the house substantially different from other comparable neighborhood houses?
On the other hand, if the change you envision is provide for the great living enjoyment of you and your family in a house in which you expect to spend many years to come, I say â€œDo what makes you happyâ€.... more
Letting your home go into foreclosure will be a tremendous impact on your credit score. Did you have an Adjustable Rate Motgage loan in which the rates reset to higher rates? If you haven't been late on payments, why sell? If you must leave, is there a possibility of renting out your home?
Typically, when funds are received from a short sale, the bank may still hold you responsible for the balance. There are just too many questions to ask here on an open forum to be able to help out. There are plenty of options which could be looked at to avoid this.