You should call a lender right away before you do anything, and tell them exactly what your plan is. You need to know the facts, so you can make your best decision. Financing has changed drastically.
1) If you do a short sale you may not be able to get financing for years for another home with that on your record
2) You may not be able to take out a new mortgage regardless of your credit score, with less than 25% equity in your current home. Too many people have bought new homes and the reduced prices and let their old one go into foreclosure. They have plugged that hole a year ago.
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