If you like the house it can probably be saved by option 3. Hiring and engineer and possibly a contractor is the best way to ensure the house can be safely retrofitted. The approach would be to strip all interior finishes (trim, drywall) so that the structure and electrical systems are visible. You may also need to expose the footings in several locations (dig) so that the foundation can be documented. With the structure and utilities exposed, the engineer can more easily document the structure and recommend any appropriate changes. His report will be the basis to obtain estimates for those changes. At that point you will have an idea whether you want to salvage the house or build new.
By doing preliminary "finish demolition" yourselves, you will save a lot of time and guesswork for the engineer. This will translate into saved costs. Your risk is that the structure cannot be salvaged and your investment in demolition and inspections will be wasted. Use your judgement whether this risk is worthwhile. Good luck and keep in touch. It will be interesting to hear what you decide.
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