Bank owned will generally close quicker. Banks arenâ€™t as responsive as private party sellers, so it may not be as quick to get an answer from them once you submit an offer.
The other issue with bank owned is you don't receive a disclosure, or at least a very useful one. The bank or it's reps never lived in the house. They would have no knowledge of past plumbing problems or roof leaks.
With a short sale, you'll receive a sellerâ€™s disclosure, but have no guaranteed closing date for weeks or months. Three to six months are not uncommon wait times for short sales. During this time the bank may foreclose or make a modification available to the owner, effectively killing your purchase, rates can and will be changing along the way. If there is a major jump, you could be priced out of the home.
My general recommendation is to find a home you love and are willing to invest your money, time and life into for the foreseeable future. The longer you live in a home the better the chance you'll have equity.