COMMUNITY

If the water was actually marked 'out of bounds' (white stakes) you need to drop in the bunker. If it's marked as a hazard (red or yellow stakes) you drop within two club lengths no closer to the hole (red stakes only) or as you described in line from the flag through the point the ball crossed the hazard. It doesn't matter in any case if the ball touched the ground before crossing the margin. If you elect to drop from where you last played then yes, drop in the bunker.

26-1. Relief For Ball In Water Hazard
It is a question of fact whether a ball that has not been found after having been struck toward a water hazard is in the hazard. In the absence of knowledge or virtual certainty that a ball struck toward a water hazard, but not found, is in the hazard, the player must proceed under Rule 27-1.

If a ball is found in a water hazard or if it is known or virtually certain that a ball that has not been found is in the water hazard (whether the ball lies in water or not), the player may under penalty of one stroke:

a. Proceed under the stroke and distance provision of Rule 27-1 by playing a ball as nearly as possible at the spot from which the original ball was last played (see Rule 20-5); or

b. Drop a ball behind the water hazard, keeping the point at which the original ball last crossed the margin of the water hazard directly between the hole and the spot on which the ball is dropped, with no limit to how far behind the water hazard the ball may be dropped; or

c. As additional options available only if the ball last crossed the margin of a lateral water hazard, drop a ball outside the water hazard within two club-lengths of and not nearer the hole than (i) the point where the original ball last crossed the margin of the water hazard or (ii) a point on the opposite margin of the water hazard equidistant from the hole.

When proceeding under this Rule, the player may lift and clean his ball or substitute a ball.