Home, Land, Property Buying and Selling - Scared to death!

My wife and I are about to start the process to acquire an 1896 family home (wife's) in which we have been living for the past 5 years as caretakers for no rent. The house was appraised at 90,000 and we will put down 20%. The loan we selected is a 30 year fixed rate at 6.375% (because we were told to do that). There is a property insurance fee of 400.00 and title insurance of 350.00. What are these fees for? We plan to have our own property insurance (not financed) I am trying to finance just the loan amount $72,000.00 and pay the rest up front. Total closing costs come to $1,897.00. Are these escrow accounts obligatory?

The loaner institution is First Citizens Bank from North Carolina. We are in West Virginia. Can anyone suggest a better option or any advise? We are dealing with my wife's mother and brothers and sister, these people(5) are the sellers. My Mother-in Law does not want her part of the money and plans to return it to us. Should we pay the principal to reduce to long term costs?
Do we need a lawyer?

I know too many questions. I don't even know what to ask. Thanks JRV :confused:

Property insurance, I'm assuming you mean the fire insurance on the house. This is something you should have been shopping for, not the bank. That first year is paid up front, the monthly payments held in your escrow account by the lender are basically in a savings account to be sent out when it comes due again. You don't lose anything by this, most lenders do not charge for doing this. Same with taxes. If you are putting down 20% most lenders will allow you to purchase an escrow waiver. In other words, you pay them for the additional risk they take by not being able to monitor and manage the payment of taxes & insurance. Most I deal with will charge .25% of loan amount for this waiver.
The title insurance is mandatory. No lender will hand over money without this. You do not have to purchase *owners* title insurance, but in some cases that would be a good idea too. Lenders title insurance: If there is ever a problem with the title on the property, which does happen, it pays off the loan or handles the situation however needed. Lenders will not close the loan without a clear title and title insurance.
$1897 may not be bad, if your state has stamps/taxes associated with mortgage loans. Otherwise, it might be a couple hundred high for a loan of that size--just my opinion. I'd expect more like $1500, but that doesn't mean it's not a good loan. That rate is what banks in my area are at as well. You may do better with a broker, but I don't think .125% lower on the rate would be worth it. The time it takes you to get started again elsewhere may cost you more money in the form of rates going up before you can do anything about it. If you haven't locked in yet, you should do so.
Money back from the mother in law could be applied towards principle. How much is that going to be? If $10,000 or so, ask your loan officer if you can have your payments recalculated later with a large payment towards principle. Some will do that for significant payments like that. Otherwise, you can still make that payment towards principle for long term savings.

We really appreciate your time and effort to clearly explain the facts about the loan. We will keep the escrow then. The closing cost disclosure list a number of fees that come up to $2,800, however as the lender stated some of those cost do not apply to us. I guess we won't know until is time to pay.