Using a home equity line of credit (HELOC) can be a smart way to finance home improvements. But choosing the right contractor is just as important as choosing the right loan. Understanding common scam tactics can help you protect your project, your budget and your home’s value.
Hiring well means recognizing the warning signs that a contractor isn’t the right fit — or worse, a scammer.
Here are some top scams to watch out for.
The Financing Middleman
A contractor offers to "arrange financing through a lender they know” to fund your home improvements. It sounds convenient, but the scam typically rushes consumers into loan terms they haven't had time to review. The result may be a home equity loan with higher rates, fees or less-favorable terms than expected.
How to avoid it: Get a HELOC with a lender you trust. Keep your financing and your contractor relationship separate.
The Large Upfront Payment
A request to pay most or all of the project costs before work begins is a red flag. Legitimate contractors typically ask for a reasonable deposit to cover initial materials, but the bulk of payment should follow the work, milestone by milestone. If a contractor pushes hard for full payment on day one, be cautious.
How to avoid it: If a contractor pressures you to pay a large amount before work starts, consider it a reason to keep looking.
The Too-Good-to-Be-True Bid
An unusually low estimate, especially one delivered door-to-door or after a weather event, can signal unlicensed work, substandard materials or a contractor who disappears once a deposit is paid. In other cases, the bid changes significantly, citing unforeseen costs that drive the price up.
How to avoid it: Get two or three written bids from verified contractors so you can compare pricing, project details and timelines.
Vague or Missing Contracts
Any contractor who resists putting details in writing or presents a contract that’s incomplete, confusing or rushed can cause problems from the start. A solid contract should include the full scope of work, materials, a payment schedule and a completion timeline.
How to avoid it: Never sign an incomplete contract and read every term carefully.
Cash-Only Payment Requests
A request for a cash payment is risky because it removes your paper trail and options for restitution. Paying by check or using a credit card provides documentation and some recourse if issues arise later.
How to avoid it: Avoid paying in cash or via wire transfers.
How to Find a Contractor You Can Trust
Ask People You Know
If your family, friends, neighbors or coworkers have hired a contractor for renovations, ask how the project went and whether they’d hire that person again. A good referral can help narrow the field quickly, especially for a project that involves a significant investment.
Do Your Homework
Check reviews, but don’t stop at star ratings. Look for patterns in complaints, search the business name with terms like “review,” “complaint” or “scam,” and review the contractor through reputable sources such as the Better Business Bureau or your state’s contractor licensing board.
Verify Credentials
Before moving forward, verify that the contractor is properly licensed and insured for the work you need done. Ask for proof, then confirm it through your state or local licensing authority. Request references from recent clients and take the time to call them. Ask whether the work stayed on schedule, how issues were handled and whether they would hire the contractor again.
Get Two or Three Written Estimates
Comparing bids is a simple way to separate the best from the rest. A professional estimate should clearly outline everything that needs to be done from start to finish. Before signing anything, make sure the contract reflects those details in full and leaves no blanks to be filled in later.
A little research upfront can save you time, money and stress later. When you know what to look for, it’s easier to hire the right person and ensure your work is done on time and within budget.
Helpful Resources
- Better Business Bureau: Check reviews and complaints.
- California Contractors State License Board: Verify licenses and understand your rights.
- Federal Trade Commission: Learn about the latest scams and report fraud.
- California Department of Insurance: Get help with fraud questions and post-disaster repair concerns.