If you are just looking to find a nice place to shelter your family while you endure this trying time, then I would find a rental opportunity that best suited your family. If you find a home that you fall in love with and could see yourself living in, then by all means I would go the Lease Option (L/O) route... it offers the best of both worlds... depending on the Landlord's objectives they will most likely let you rent anywhere from 1 to 3 years or more... if the House is the Landlord's current primary residence, then they may not be flexible on the length of the lease... they may be trying to ride out the market until it improves and they can sell... if it is owned by an Investor, then they may be willing to let you live in it for a much longer duration...
Lease Option Pros:
1. You can lock in a Sales Price at today's market price, for a period in the future... since the market can only get better, if you or your Agent can negotiate a great deal then you will be the beneficiary of any appreciation should you buy it down the road.
2. Most Lease Options, will offer you an incentive for making payments on time... on my investment properties, I would offer the Tenant $100 Credit per Month if payments were made on or before the Due Date... so if they paid on time for the 12 months they lived in it, they would have earned $1,200 off the Sales Price on the house when they but it.
Lease Option Cons:
1. In your situation, you will need as long a L/O Term as possible... if your current property will be foreclosed on then your Credit will take a beating as you know... you will then need 3 - 5 years to get approved down the road depending on how long it takes to repair your Credit... so try and get a 3 Year term...
2. Most L/O Agreements require a significant "Option Payment" which is similar to a "Security Deposit". I typically require a minimum of a 3% Option Payment upfront... so on a $200,000 House, that would be $6,000. If you close on the house down the road, it gets applied to the Sales Price... if you don't close on the house and walk away, then you would lose it.
3. I always run Credit on my prospective L/O purchasers... I know going in most people that want a L/O are going to have less than perfect credit... I am most concerned that they have steady employment and have the ability to meet their montly obligations... not all do, but you need to be aware this might be a hurdle.
If you are short on cash, then you might want to call your current Lender and see if they have a "Cash for Keys" program... your Lender will typically pay you a few thousand dollars in exhange for the keys to your home before Foreclosure... it is their incentive to keep the house in as good of shape as possible, before they take it back... it puts some cash in your pocket to help you on your next phase in life...
Good luck and best wishes!!!