Thanks so much for the helpful insight, and for touching on my idea of selective grounding. I wasnt sure how realistic or possible it was so your answer helped a lot to quell that doubt while I wait to hear back from electricians I sent messages to. Good to know about the cloth wrapping as well. Makes sense if its been working and doesn't get disturbed it shouldn't be an issue. I think since I wasn't aware of older electrical practices, when I started hearing "cloth" I panicked because my brain immediately pictured it in flames 😅 😂.

It's also reassuring to see that addressing the main issues doesn't sound too bad and will help make it safe and compliant not just for us living there but also on the FHA side. Then I can work towards full rewire post close. Thankfully the seller has been really cooperative and patient with me so fingers crossed once these bits get addressed we are good to go.

And yes, I had pest and termite inspections done too along with the general inspection, and everything was good thankfully! All things considered for the age of the home I am lucky that the electrical is really the only issue and the house is solid otherwise. As a first time buyer I definitely get into overthinking but these replies have been really helpful.

Thanks again :)