Next time it's raining hard, go outside and look at what's happening. If water is shooting over the eavestroughs because they are full, change them and regrade.

Inside "waterproofing" isn't waterproofing at all. It does nothing to address the defects that are letting water in. It only ensures that the defects will grow over time. But it is relatively cheaper than building the house the way it would be now by a builder utilizing best practices.

Assuming you're not in a high water table and there is no hydrostatic pressure from underneath the house, that means: 1) exposing the foundation; 2) patching any obvious cracks; 3) installing new weepers and connecting them to an appropriate outlet; 3) covering the weepers with gravel and free-flowing fill; 4) wrapping the wall in waterproof materials, e.g., plastic dimple wrap, sprayed elastomeric coatings, alternating layers of fibrated asphalt and fiberglass fabric etc. etc.

Whatever you do--or don't do--I'd get rid of the mouldy drywall. That's not doing your home or your health any good.

Thanks so much for the feedback! ...So is the option 1 or 2 is the best for the house?
Option1: I am not against installing interior drain system + sump pump, (although my basement does have a drain that I think is connected to septic) but my basement floor is covered with tiles and I am not excited about breaking them down along the wall to install a pipe (sorry for not explaining well).
Option 2: Excavating the outside may be a problem with old tree stump close to the wall (and I am not happy about tearing the landscaping too).

In any case, if you look at the web, some says Option 1 is the "only sure waterproof system with easy maintenance" and Option 2 may have problem with "any maintenance work would be difficult without re-digging" and "will take years for soil to pack". And there are articles that says negative about Option 1 as well.

But then any article that says negative about one option over the other seems to be sponsored by companies that does business on the other option... so I am not sure who to trust.

sanshonomi

It would be helpful if posters would do other than paste unattributed paragraphs from elsewhere, probably their own sales materials.

Which route you choose depends on: how much water is coming in and from where--localized or general; whether the amount coming in is a severe inconvenience or just an occasional nusiance; and your budget in relation to how long you plan to continue living in the property.

If it were my property, as I posted earlier, I'd first check the eaves and grading. It could be that simple.

After that, it's a harder choice. If the water is only occasional and minor, even Building Science Corp.--perhaps the leading independent building science consultancy in North America--says that internal weepers attached to sumps are acceptable. (See RR-0509c in the link below.) But for anything greater, I'd go the excavation route. Maybe only excavate the wall from which water is coming through already.

Before you go ahead with anything other than grading or eavestroughs, be sure to check for any other water sources. Broken drains and leaking supply pipes both inside and outside the home can be the sources of leaks.

Here is a link that might be useful: Understanding Basements--(Download 0509c)

worthy,
Thank you again for the post - I think I will start with sealing the old downspout and redo the grading, possibly upgrading the gutter and see what happens first. The water problem is actually minor. I saw water on floor when I first moved in when the gutter was covered with leaves and doing nothing. Since cleaning the gutter the basement has been pretty dry - until the spring came melt the snow. That was when walls started to get moist.
The grading actually does not look too bad - maybe slightly toward the house but not making puddle or anything - but I guess it is worth doing everything before spending >10k - especially I am not sure if I stay > 5 years (thanks for pointing that out :-)
Lastly the website was very helpful. Thank you again!

We had an internal drain system put in our basement. What they do is drill holes in the wall near the floor to let the water in. It collects in a baseboard type system which then drains into your sump. It started with one wall. We were told the "water would enter at the point of least resistance" such as through the holes in the wall. The next year we had problems with leaking in other areas! We ended up with this system in the entire basement. The next year water started coming up through cracks in the floor. We have a high water table around our house. What finally worked was cutting down a row of trees between our house and the neighbors which stood about 15 ft from our house. The internal system did nothing as far as I am concerned and it unsightly. Ugly! And made the basement smell worse than it did before. I would go for the grading, downspouts and then making sure you don't have roots plugging your outside drain tiles. Do you have outside access points in the tiles? You can put some type of copper powder inside the system which helps kill the roots in the tiles. Wish you luck.