I feel like you have all the ideas for a great story, unfortunately this is more like visual novel than horror fps experience where you main character drown into madness.
The ending shows how the whole game should have been made (in my opinion) : make your story works by showing, and not telling : the burnt painting, shadows of the deads and the lights of police cars on the windows, this works. But the long dialogs doesn't help to feel anything.
At least that's my opinion : show don't tell.