Lenders — and every ratio in the previous subsections — assess affordability against gross income. For a household clearing seven figures in California or another top-bracket state, that denominator is fiction. Federal at 37%, the California top ordinary bracket at 12.3% plus the 1% Behavioral Health Services Tax (formerly Mental Health Services Tax) on income over $1,000,000, the 1.3% SDI rate that lost its wage ceiling under SB 951 (see section “SSDI” for the disability mechanics), NIIT at 3.8% on investment income, and OBBBA’s 2/37 cap on itemized deduction value all stack. The all-in marginal hit on the top dollars routinely exceeds 50%.
The arithmetic that matters: a lender’s headline “50% gross DTI ceiling” translates into more than 100% of your net take-home pay going to debt service if you take them at their word. The DTI is calibrated on a world where gross and net are close enough not to matter — which is not the world you live in. Re-derive every ratio against your actual take-home cash flow, not the W-2 box, and set your personal ceiling well below the lender’s number. The 30/30/3 rule that follows compounds this trap by anchoring on gross income too; treat its 3 multiplier as an upper bound on net-income-equivalent purchase price, not gross.