If you are in the unfortunate situation of trying to decide between letting your property go into foreclosure or try to sell as a short sale, you should know how it will effect you when you try to purchase a new home in the future.
Foreclosure
FNMA : need 7 years from time of foreclosure
FHA : Need 3 years from time of foreclosure

Under a Short Sale the rules will vary
FNMA: After 2 years if the client is putting down 20% and get an approve/ eligible under DU( desktop underwriter), FNMA will be able to lend to this borrower. If they are putting less than 20% and need mortgage insurance, it will be after 4 years.
FHA: It is the same as foreclosure, 3 years, unless they made their payments on time up until the property sells. They would also need to be current on all other debts for the last year and able to show hardship as the reason for short sale. If the client can prove all of these conditions, FHA has no time restriction on when that buyer can reapply to purchase a property.