Why does the narrator live with his grandparents? What might you infer happens to his mom and dad? Cite evidence from the text to support your response.

Both parts of this question are difficult to answer, because I am unsure if the questions assume that a reader has read all of the book or not.  If the reader has completed the book, we know that Max lives with his grandparents, because his mom is dead and his father is in prison.  Those two facts are made worse by the fact that Max's dad is in jail because he is the person that murdered Max's mom.  
Based only on chapter 1, readers don't know why Max lives with his grandparents.  We just know that, for some unknown reason, his parents are not in the picture.  We also know that Max's grandparents are his mother's parents.  We also know that Gram and Grim won't mention Max's dad by name, and they are afraid of him for some reason. 

Grim out in the kitchen one night, after supper whispering to Gram had she noticed how much Maxwell was getting to look like Him? Which is the way he always talked about my father, who had married his dear departed daughter and produced, eek eek, Maxwell. Grim never says my father's name, just Him, like his name is too scary to say.

From this little bit of information, I think most readers could infer that Max's father is an abusive father in some way.  It's possible that Max's mother sent him away to keep him safe.  Or it's possible that she ran away and Max's father didn't want to take care of Max.  All of that is pure conjecture based on very limited information.  I remember my first read of this book, and nothing I thought of was as bad as Max seeing his dad kill his mom.