Sally, there is no way that you should live in a house that has knob and tube wiring without having an insurence carrier that you really like because you will have a good chance of really needing them. Knob and tube wiring was OK when it was put in your house because it was the best available thing at the time. Today, it is so obsolete, and there is a much better alternative available, that no one should really think twice about replacing it. Do you really want to risk not just your house but also your family? Knob and tube wiring is not only a fire hazard, it is also a much greater electrocution hazard. It patently cannot be made as safe as the current 2 wire and a ground system. Whatever the cost, if you want the house, it would be worth replacing it.
This subject had been covered before on this board. See Knob & Tube wiring on 4/11 below.