If the source of down payment is coming from you, the funds would be usually considered 'Gift Funds' and depending on the type of financing your daughter and son-in-law qualify for, it will determine how much money can be gifted if at all. Your situation is very common so please communicate your plan with the loan officer so she or he can accurately assess your situation and provide the best financing options. In regards to taking title, it is always recommended to discuss that with an Estate Attorney or Real Estate Attorney. In terms of your purchase, you can ask the loan officer if the bank will allow you to go on title at closing. If not, which is common, you can always be added to title after the transaction closes by filing two simple documents at the county recorder's office.
No new contract is 'usually' needed. Escrow creates a document called an 'amendment' to the terms of the contract and this document is sent to your lender. Escrow also makes a change to the current estimate aka the HUD-1 and makes a re-adjustment to reflect the additional $800 you have to bring in to close. The underwriter from your lender will receive and review this new amendment and new estimate aka HUD-1 and sign off on it as long as it refects the new terms correctly. These situations are fairly normal. Common practice is that any new changes to the original terms of the agreement that happen after initial acceptance are agreed to by both parties (buyer and seller) and then modified through escrow. I hope this helps.*P.S. I just realized that you are in Michigan, I'm in California, so your sale may or may not go through 'escrow'. Regardless, the contract should not reflect anything less than $130,800. Whoever is handling your closing should document the fact that you infact need to bring in an additional $800, otherwise, with a contract reflecting $130,000, the accounting, credits and debits will be off by $800. Consult your attorney and/or Realtor.