Good question. I have attached a web reference guide to this post. Make sure to read the FAQ's.
If you NEED to sell, than a short sale is the answer (unless you have $50,000 cash that you want to contribute to the sale). If you are looking to buy another home be very careful with some of the other advice given here. Income from rentals can not be counted into your debt to income figures unless you have over 25% equity in the home you were living in and started renting out. Values are not expected to rise to 2007 levels again for almost 20 years. If you have some discretion on when to sell you have a few more options that we can talk about.
Also, if you are current on your payments STAY CURRENT. Many agents will tell you that you have to be late to do a short sale. This does make it easier for the agent, but is not necessary. And if you go late, and end up with a Notice of Default being filed you will not be able to buy another home for 2 years (and then only with 20% down), or 3 years normally.
If you have questions about the effects of a short sale on your credit, ability to buy another home immediately, forgiveness of debt by your lender, guarantee of no future collections, bank process of a short sale, ability to rent out a home being short sold, taxes that could be owed on forgiven debt, or ANY other questions please call me. We can have a confidential conversation. I would give the answers here, but they depend on your situation.
The main thing to do is have a conversation with a competent, CERTIFIED, short sale negotiation agent, which I am. Do not work with an agent who is doing this on their own. You need an attorney overseeing the file. Ask any agent that you talk to if they are qualified to give legal advice regarding the sale, or if they have a team member who is.
Founder, Utah Matters Coalition
Keller Williams South Valley
801-805-4900 (yes I text)