How to Hire a Home Improvement Contractor Safely

Most bad remodeling stories start before work begins: an unlicensed crew, a handshake deal, or a large cash deposit. Here are the checks that protect you, based on Federal Trade Commission (FTC) guidance and state contractor law, plus a free budget calculator.

Updated October 28, 2026

Plan Your Budget Free Tools

Before you sign anything

Confirm the license with your state.
Get proof of insurance.
Collect written estimates from several firms.
Sign a written contract with every blank filled in.
Keep the deposit small.
Get lien waivers before the final payment.

Step 1

Check the License and Insurance

Many states, but not all, require contractors to be licensed or bonded. Ask your local building department what applies, then look up the contractor's license number with the state board and confirm it is current.

The FTC advises hiring only contractors who are licensed and insured. Ask for a certificate of insurance for general liability and, if they have employees, workers' compensation, and call the insurer to confirm it is active.

Ask for at least three clients with projects like yours, and call them: did the work finish on time, and were there unexpected costs?

Step 2

Get Estimates and a Written Contract

Get written estimates from several firms and do not automatically pick the lowest bid; ask why one price is far below the others. Even if your state does not require a written agreement, ask for one. The FTC's "Hiring a Contractor" guide (March 2014) says it should include:

the contractor's name, address, phone and license number;
estimated start and completion dates;
the payment schedule for the contractor, subcontractors and suppliers;
the contractor's obligation to get all necessary permits;
how change orders are handled;
a detailed list of materials and any allowances;
warranty terms for materials and workmanship;
a written statement of your right to cancel within three business days if you signed at home.

Never sign a document with blank spaces, and keep a record of every payment.

Step 3

Payment Schedules, Deposits and Lien Waivers

The FTC's advice: do not pay cash, limit your down payment, and tie each payment to a defined amount of finished work, so payments slow down if the job does. Make the final payment only when the work is done and you are satisfied.

Some states cap the deposit by law. In California, a home improvement down payment may not exceed $1,000 or 10% of the contract price, whichever is less (Business and Professions Code section 7159.5). On any contract of $10,000 or more, the cap is $1,000. Ask your state consumer agency for the rule where you live.

Bar chart of the maximum down payment on a California home improvement contract: $500 on a $5,000 contract, and $1,000 on $10,000, $25,000 and $50,000 contracts — California caps the down payment at $1,000 or 10% of the price, whichever is less, so the cap stops growing at a $10,000 contract.

Lien waivers protect you from paying twice. If the contractor does not pay a subcontractor or supplier, state law may let them file a mechanic's lien against your home. The FTC recommends a lien release or waiver from the contractor and every subcontractor and supplier.

Free Tool

Remodel Budget Calculator

Enter the contractor's estimate to see your total budget and a payment schedule: deposit, milestone payments and a final payment held until the job is complete.

Contractor's estimate ($)

Contingency reserve (%)Rule of thumb: 10-20%

Permit fees ($)Ask your building department

Deposit (% of estimate)

Milestone payments

Final payment held (%)Paid after the final walk-through

Total budget

Total budget = estimate + contingency + permit fees. The contingency is your own reserve, not paid to the contractor. The 10-20% range is a planning rule of thumb, not a legal standard. The California check uses Business and Professions Code section 7159.5. Educational tool, not legal advice.

Step 4

The FTC's Signs of a Home Repair Scam

The FTC's "How To Avoid a Home Improvement Scam" (July 2022) lists these warning signs. Be careful with anyone who:

knocks on your door because they are "in the area";
just happens to have materials left over from another job;
pressures you for an immediate decision;
only accepts cash, asks you to pay everything up front, or suggests you borrow from a lender they know;
asks you to get the required building permits;

If you signed at home, the FTC's Cooling-Off Rule (16 CFR Part 429) lets you cancel a sale of $25 or more until midnight of the third business day. If you cannot settle a dispute with the contractor, contact your state attorney general or local consumer protection office.

Guides

Frequently Asked Questions

How much should I pay a contractor up front?

As little as possible. Some states limit it; in California the limit is $1,000 or 10% of the price, whichever is less.

What is a lien waiver and why do I need one?

A signed statement that a contractor, subcontractor or supplier was paid and gives up the right to file a mechanic's lien for that payment.

Can I cancel a contract I signed at home?

Often, yes. The Cooling-Off Rule gives you three business days for a sale of $25 or more made at your home.

Who should get the building permit?

The contractor. A contractor who asks you to pull the permit is on the FTC's list of scam warning signs.