How can I get rid of my home?

Like many people, my home is quickly losing value and I owe more on my home than it’s worth. What are my options?

It is getting harder for us to afford our mortgage payments, due to the blessing of our new child. This home was only supposed to be our started home, but it seems like it’s going to be our retirement home now. I don’t think we are very good candidates for bankruptcy since it costs us about $ 1500/month for mortgage/taxes/equity loan/insurance payments and we earn about $ 5000/mo. However, it would be about $ 700-800/mo cheaper for us to rent or own a larger home for our growing family. With no end in sight to the housing crisis, it seems best to get rid of our home before it loses any more value and save money to prepare for the economic recession ahead.
The fair market value of our home is probably $ 110k now. However, we owe about $ 180k in a refinanced mortgage. We are also paying the bank a home loan insurance, because the loan is greater than the value of the home. I would like to just surrender our deed in lieu of foreclosure to our lender, but don’t want to be stocked with having to pay for the rest of the loan. Would my lender take back a loan like this? Do they have the option of making me keep my home and only foreclose if I miss payments? How does it work if I WANT to give up my home and walk away?

What if we try to sell our house at the current market value or in a short sale? Would we have pay the rest of what we owe at the closing? What are the tax consequences of a short sale?

Can anybody help us decide what to do? Are bankruptcy or foreclosure options I should consider? Would I owe taxes after a foreclosure? Could I even declare bankruptcy if we’re making the current payments easily and have an excellent credit score?

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