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I have a 1920s house that a previous owner (70s or so) tried to finish the basement. They installed 2x4 studs, filled some of the cavities with fiberglass insulation, and then covered it with sheets of wood paneling. I would like to try and finish it with drywall for a play area, and wanted to replace the fiberglass with rigid foam, since some water gets in the basement in the unfinished area (the currently finished portion remains dry). Since the studs are already in place I'd prefer to keep them, if possible. I imagine this means I will need to cut the sheets of foam board to fit, and then caulk the seams with the appropriate caulk/foam.

Here are my questions:

1) On the exterior walls I know I will attach the foam to the foundation, but in the walls dividing the finished space from the unfinished area do I want to attach the foam to the finished wall or to the unfinished wall?

2) On the exterior walls, even if I get 2 inch foam I am pretty sure it won't fill the cavity completely (since the walls are 2x4 studs). Do I need to add another sheet of foam insulation on top of it or is the empty space acceptable?

This is my first time working with foam insulation so I appreciate all the help. Cost is a consideration so I don't think spray foam is an option. And with the occasional moisture in part of the basement (I am working on the water issue and already have a french drain in the areas where some water gets in, which keeps it from getting into the living space) I would prefer not to risk it with fiberglass. Any help would be greatly appreciated!
 

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Pretty hard to tell where the house is at........ hence the profile when joining. Is the unfinished area heated? Dirt floor? Concrete? Exterior walls insulated? If the FB is enough R-value for your Location/climate, an air space is fine as the cavity would be conditioned from the rooms appliance heating; http://www2.dupont.com/Tyvek_Weatherization/en_US/assets/downloads/Master Architect Binder/Technical Bulletins and Case Studies/Commercial Technical Bulletins/Tyvek with Exterior Insulation Building Science Bulletin.pdf
Gary
 
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