Blown budgets, shoddy work, projects that drag on longer than expected – remodeling your dream home can quickly become a nightmare if you don't hire the right person for the job. Plenty of homeowners have found themselves in this situation. Unless you know how to find a skilled and reputable contractor to work on your home, you could be one of them

Here are three things you can do to avoid hiring the wrong contractor.

1. Get referrals and check references

Ask friends, family, and neighbors who they would recommend, but do your own research as well. Google the contractor’s name and look at sites, such as Angie's List, Yelp, and the Better Business Bureau. Also consider a contractor’s social media presence and choose one with lots of verified reviews.

Paul DeFeis, Managing Partner at Trade Mark Design & Build, a home remodeling firm in Hawthorne, N.J., recommends asking for references and contacting those references to ask questions about the contractor's performance, how they handled issues, etc. He also suggests asking to see the completed work.

2. Only hire a licensed contractor

If you hire an unlicensed contractor, you risk hiring someone unqualified to finish the job or someone without the proper insurance to protect you and your property if things go wrong.

Jody Costello, the founder of ContractorsFromHell.com, recommends checking with your state's contractors board to confirm the license is active and ask about any complaints or disciplinary history.

But remember “Just because there is no history of complaints on the board's website doesn't mean there haven't been any,” Costello explains. “Complaints can take up to 18 months to disclose to the public due to the time it takes to investigate. In the meantime, the contractor is free to continue working."

3. Get a contract

Your contract should spell out exactly what is expected, by what time, and the quality of work, materials and finishes.

Jerryll Noodren, a real estate investor with We Buy Houses in Connecticut, says: “The contract should also state that the contractor can be fired if the work is not performed as expected, even mid-renovation, without pay for the work that is not performed to satisfaction."

For big jobs, the contract should divide the work into milestones, with payments due as the work progresses. That way, if anything goes wrong, you haven't handed over your entire budget to the contractor.

What to do if you've already hired a bad contractor

Even with the above precautions, it's possible to run into problems after the work begins. Here are several steps to take if you discover the contractor you hired isn't doing a good job.

1. Document your concerns in writing

Costello recommends documenting your concerns in a letter to the contractor and sending it via email and certified mail.

“Create a paper trail," Costello says, “because if you end up in litigation or filing a complaint with a regulatory agency, they will ask for proof of what you say has gone wrong."

2. Leverage your payment schedule

Once you've addressed your concerns with the contractor, they should work with you on a plan to make corrections. Otherwise, DeFeis recommends withholding additional payments and not allowing the work to progress. “If the contractor is still unwilling to correct the unsatisfactory work, it's best to remove and replace them from the project," he says.

3. File a complaint

If your contractor performed shoddy work, didn't complete the work as outlined in your contract, or didn't follow building code requirements, you can file a complaint with:

  • Your state's contractors license board
  • Your city or county building department
  • Your county's consumer affairs division
  • The contractor's bonding company

If you notice problems during the course of the project, don't wait until the work is complete and all of the fees are paid out to address your concerns.

“Lawsuits and attorneys typically yield more costs and little to no results," DeFeis says. So you’re better off stopping the work early on and either reach an agreement with the contractor to address your issues, or hire someone else who can.