Let $h:S_n\to \mathbb{C}^{\times}$ be a group homomorphism. As you have noted, $h$ must map the transpositions to elements of order $1$ or $2$, i.e. $1$ or $-1$.
Since every permutation may be decomposed into a product of transpositions, then $h$ takes values in the discrete set ${-1,1}$. This places a restriction on the size of the image of $h$, i.e., $1\leq |\text{im}\,h|\leq 2$.
By the first isomorphism theorem, $S_n/\ker h\cong \text{im}\,h$ hence $\ker h $ has index $1$ or $2$ in $S_n$. If $\ker h$ has index $1$, then $h$ is the trivial homomorphism. Otherwise, $\ker h$ has index two in $S_n$, so $\ker h = A_n$ and $h$ is the sign homomorphism.
Alternatively, we argue in the following way:
In the case where $|\text{im}\,h| = 1$, then $h$ is the trivial homomorphism, mapping each element to $1$.
In the case where $|\text{im}\, h|=2$, then at least one transposition in $S_n$ must be mapped to $-1$ by $h$. Since all the transpositions are conjugate, then every transposition must be mapped to $-1$ by $h$. It follows that $\ker h = A_n$ and that $h$ is the sign homomorphism.