Second Home Loans on Hilton Head Island, SC: Fannie Mae Rules, Property Tax, Flood Insurance and the Town's Transfer Fee

Charles Fraser came back to Hilton Head Island in 1956, the year the first bridge opened, and bought his father's timber interests on the south end. He started the company that became Sea Pines, according to Sea Pines' own history. Thirteen years later the first Heritage was played at his new Harbour Town Golf Links in Thanksgiving week, and Arnold Palmer, then 40, won it, according to LOCAL Life's history of the tournament. The lighthouse beside that course picked up the nickname Fraser's Folly while it was going up.

A second home on Hilton Head Island can be financed with a conventional loan when it is for your own use, suitable year-round and free of rental or management agreements, though occasional rental income can be acceptable. I'm Jeff Moran, NMLS #483943, a mortgage broker licensed in South Carolina through C2 Financial Corporation, and I have been in the mortgage business since 1996. I work from Bluffton, on the other side of the bridges.

A second home on the island, day to day

If you live somewhere else most of the year, the airport is your front door to the home. WTOC reports that the new terminal opened on May 1, 2026, a 27,000-square-foot building that is part of a $42 million expansion.

You probably already have a few weeks in mind when you picture the home, and the island gives you good ones to plan around. WTOC reports that the 59th Heritage is scheduled for April 12 to 18, 2027. The Seafood Festival marks its 20th year at Shelter Cove Harbour & Marina from February 22 to 28, according to the island's visitor site. A rental program would want those same weeks, which is why I look at who controls the calendar before you make an offer.

The quieter weeks have their own routine. On Tuesdays, year-round, the farmers market runs from 9 a.m. to 1 p.m. at the Coastal Discovery Museum at Honey Horn. I build your loan around the weeks you plan to keep for yourself, because those weeks are what make this a second home, and I write your plan down with you at the start so the application matches it. If you want the wider picture of the place first, I wrote about the island itself, and the South Carolina page explains attorney closings.

Fannie Mae's definition of a second home

As you describe the home you have in mind, I listen for four things. They come from Fannie Mae's Selling Guide, section B2-1.1-01, and I explain each one as we go.

• You will stay in the home yourself for some part of the year.
• It is a one-unit home that works for living in all year, not just in the warm months.
• It stays under your control, so it is not a rental property or a timeshare.
• Nobody else, a management firm included, decides when it is occupied.

Your file also goes through Fannie Mae's automated underwriting system, Desktop Underwriter, and I want it to come back with an Approve/Eligible recommendation. That is the system's finding that your file fits Fannie Mae's rules as submitted. Freddie Mac has its own guide, and I check it when it fits your file better.

That fourth item is where the island needs a closer look at your paperwork, because many rental programs do exactly what Fannie Mae rules out. A program you can step out of, or one that never touches your own weeks, is a different conversation, and I read the agreement with you before an offer goes in.

Renting the home out, and what that does to the loan

Since January 2023 the Town has required a permit for every short-term rental, according to its short-term rental ordinance and FAQ. If you plan to rent, the application goes in your own name, because an LLC cannot apply. The fee is $150 per bedroom, and your permit number goes in every ad you run.

The Town's short-term rental page says the ordinance applies to rental periods under 30 days. In practice, that permit is what tells the Town you are renting the home out rather than using it yourself, so I ask you straight out what you plan to do with it. Fannie Mae's guide says a lender that identifies rental income on a second home can still treat the loan as a second-home loan, provided that income is not used to qualify you and every other requirement is met. If you intend to rent regularly, or you are counting on that rent to carry the payment, it is an investment property and I finance it as one.

If that is your plan, the loan you want may be a DSCR loan, which is qualified on what the home itself earns in nightly or monthly rent rather than on your personal income. My DSCR page for Hilton Head Island walks through how one of my lenders counts nightly rent, and the second home versus investment property article covers the difference in general. Either way, the occupancy you tell me about is the occupancy that goes on your application, and I would rather we settle it together at the start.

Down payment, reserves and the loan limit

For a one-unit second-home purchase, Fannie Mae's Eligibility Matrix allows a loan of up to 90% of the price or appraised value, whichever is lower. For you that means putting at least 10% down. Your credit and the system's findings decide where your file lands, so I run your actual scenario before you count on that number. The table below shows the arithmetic on an invented price, so you can swap in your own.

Illustration: invented $600,000 purchase
Price (invented)	$600,000
Largest loan at 90%	$540,000
Smallest down payment at 10%	$60,000

I also want you to keep some cash in the bank after closing. Those are your reserves, and on a second home Fannie Mae's Selling Guide says the system generally looks for two months of the full payment, and for more if you own other financed properties. So when I plan your cash with you, I count the down payment, your closing costs and those reserves together.

Your payment on this home has more in it than principal and interest. I add property and flood insurance, real estate taxes and any owners' association dues, which is how Fannie Mae's guide on monthly housing expense says to count it. Then I count both of your homes together, so the payment on the home you live in goes into the same math under the guide's debt-to-income rules.

The price you pay also sets which loan type you are in. The Federal Housing Finance Agency sets the 2026 conforming limit for one unit in Beaufort County at $832,750, and the whole island is in Beaufort County, so that is the limit at every island address. Above that amount you are in a jumbo loan, and jumbo pricing and terms vary from lender to lender, so I would walk through the options with you by phone.

The 6% tax assessment on a second home

The tax bill on this home will likely surprise you if you are used to the one on the home you live in. South Carolina assesses a legal residence at 4% of its value, and Title 12, Chapter 43 says that does not apply to rental properties. Other real property is assessed at 6%, and your second home is in that group. A mill is one dollar of tax for every $1,000 of assessed value. The Town explains that on your second home one mill comes to $6 for every $100,000 of appraised value, against $4 on a home you live in. The table shows what that does on an invented $600,000 value.

Illustration: invented $600,000 value	Assessed value	Tax for each mill
Second home, 6%	$36,000	$36
Legal residence, 4%	$24,000	$24

Your bill adds up the mills from the Town, Beaufort County, the school district and the home's water and sewer district. Your home also misses a break the seller may have had, because Title 12, Chapter 37 exempts a legal residence from the school district's operating tax and a second home does not get that. My article on the second-home tax bill in South Carolina works a full example.

That is also why I do not lean on the seller's tax bill, since it may reflect the 4% ratio. I build your payment on the 6% assessment and your price, and the county assessor confirms what applies to the parcel you choose.

Flood, wind and association dues

Before you write an offer, I look up the FEMA flood zone for the address, because the premium goes straight into your payment. You will see zones like VE (high-risk coastal), AE (high-risk) and X (lower risk). The map has shifted a lot, and I would not want you to assume the old picture still holds. A story from the Island Packet, carried by InsuranceNewsNet, reports that FEMA's 1986 maps put about 75% of the island in a high-risk flood zone, and that the 2021 maps put about 25% of the land area there. So I want the zone from the current map for your lot, and I do not assume either number applies to it.

There is one bright spot for you when you shop for coverage. The Town says it holds a Class 5 rating in FEMA's Community Rating System, a potential 25% discount on flood insurance premiums, so I would ask your agent about it in your quote.

Wind is the other quote I ask you to get. The island is east of the west bank of the Intracoastal Waterway, which is where South Carolina's Title 38, Chapter 75 draws the line for the coastal area of the state's wind and hail association. Because state law puts the island in that area, a wind policy may come into the picture for your home, and an insurance agent can confirm the territory and quote it.

Owners' association dues vary a great deal across the island's gated communities and the neighborhoods with no gate, and they count in your payment. I do not print a dues figure here, because they change. If you can provide the association's resale documents, all pages, I put the dues and any special assessments into the payment I run for you.

The Town's transfer fee at closing

If your home is inside the Town, there is one more cost to plan for. The Town's Taxes and Fees page says a purchase there carries a real estate transfer fee of 0.25% of the sale price, collected through Beaufort County for the Town. The Town's ordinance has the buyer pay it, and your purchase contract can shift it to the seller. It is money you bring to closing along with your down payment, so I list it in your closing costs from the beginning.

A Hilton Head mailing address is not always on the island, so I check that for you too. Moss Creek, Sun City Hilton Head and others use the name and are off the island, where the Town's fee and rental permit do not apply. Beaufort County's property records show whether a property is inside the Town.

The checks I run on a specific home

Once you have a property in mind, a few things change your payment or your loan, and I go through each one with you.

I start by checking whether the home is inside the Town of Hilton Head Island, since that decides the transfer fee and the rental permit. Then I would like to see the association's rules on renting, along with any rental program or management agreement tied to the home. I also look at the flood zone, and I would be glad to have a flood, homeowner's and wind quote from your insurance agent. For a condo or villa, I review the project, because Fannie Mae's Eligibility Matrix lets the maximum loan-to-value drop depending on the project. Last, I look up the county's tax district and the assessor's value for the parcel.

From there I run the payment with the home's tax bill, dues and insurance in it. You'll see pricing for your scenario, choose a rate option, which you can change later, and the application opens from there. Getting pre-approved in South Carolina lists what I will ask you for, and the conventional loans page covers the basics of the loan type. You are also welcome to call me and talk it through first.

Nothing on this page is a loan approval, a denial or a commitment to lend, and it is not tax advice. Fannie Mae's guide and matrix change, and your credit, the property and the appraisal decide where a file lands. The county assessor decides which tax rate applies to a specific property.

Common questions

Can I finance a second home on Hilton Head Island with a conventional loan?

Yes. Fannie Mae's guide allows a second home as a one-unit dwelling that you occupy for part of the year, that is suitable for year-round use and that stays under your exclusive control. It cannot be a rental property or a timeshare. The loan is run through Desktop Underwriter, and the file has to come back with the system's Approve/Eligible finding, which means it fits Fannie Mae's rules.

How much down payment does a second home on Hilton Head Island need?

Fannie Mae's Eligibility Matrix, dated August 5, 2026, sets the maximum loan-to-value for a one-unit second-home purchase at 90%, which means at least 10% down. Your credit and the automated findings can call for more, and I price your actual scenario.

Can I rent out my second home on Hilton Head Island?

The Town requires a short-term rental permit in a person's name, with a fee per bedroom. For the loan, a home you intend to rent regularly or count on for income is an investment property. A second home can have some rental income identified as long as the lender does not use it to qualify and the other requirements are met.

Is property tax higher on a second home on Hilton Head Island?

Yes. South Carolina assesses a second home at 6% of its value, while a legal residence is assessed at 4%. The Town, the county, the school district and the water and sewer district each add their mills on top of the assessment, and a second home does not get the school operating exemption.

Does a condo or villa on the island count as a second home?

It can. A condo unit is a one-unit dwelling, and the project it is in gets a review that can lower the maximum loan-to-value. A project that runs a rental pool or controls when the unit is occupied can disqualify the unit from second-home financing, and I read the project documents with you before you make an offer.

Who pays the Hilton Head Island transfer fee?

The Town's ordinance has the buyer pay the 0.25% real estate transfer fee, and Beaufort County collects it at closing. A purchase contract can move it to the seller, so the contract is where to look.