Inspect the walls and ceilings for signs of water seepage or actual damage. If possible, wait until it is raining and check to see if the foundation is leaking. While a small amount of moisture is normal in a below-grade surface, excess moisture is definitely a problem. If you notice yellow or brown spots on the ceiling, if there is a musty smell in the basement, or if the walls appear to be damaged, this is a sign that you have leaks or a condensation issue that must be fixed.
The type of flooring you use in your basement is determined by the moisture levels that are present. If the basement is completely dry and well sealed, carpet with a moisture barrier underlayment is fine. If condensation is an issue, or if you live in an area with a high water table or frequent flooding, choose an epoxy floor paint or vinyl tile that is laid directly on the concrete subfloor. This will help prevent dangerous mold and mildew from forming.
Inspect the basement for structural cracks in the walls and foundation. These areas are culprits for letting in excess water. While small vertical cracks are normal and tough to avoid, large or horizontal cracks are signs that you may have serious structural damage to the home, which is most likely caused by a shifting foundation or poor water drainage. These problems need to be addressed before your renovation project can begin.
A slightly damp basement can be cured by installing a dehumidifier and running it constantly. Set up the unit to drain directly into a floor drain to avoid having to empty the reservoir constantly. Seal concrete walls with waterproof sealant to keep seepage down. Fix serious foundation issues and reroute water that may be coming into the basement from gutters or slopes in your landscaping. If you live in a flood plain, install a sump pump in the basement to keep water from building up.