My wife hates moving and although she understands our goal of building a portfolio she wouldn't be keen on moving to a worse neighborhood or smaller living space simply to get a lower down payment. 

You have target  to pay off early to create more equity so right approach will be lower interest rate.

They can bid more than we can and still turn a better profit than we could at our lower bid. 

Do I go with the boutique that has way lower fees but also way lower production, or do I go with the big firm with high fees and higher production?

They may be lower in your area, but make sure to calculate them properly especially when putting that much capital behind a project.

.- The bank will use the lower of the appraisal or purchase price for their loan. 

@Elaine Lai As others have said, your down payment/equity is much lower than almost all banks will require (generally require 20-25% of total costs (land, hard & soft construction costs). 

According to him to lower the interest to 4.5.

I don't know the area but $1,700 a month for a $125k house seems off, and if you are in PA I believe that your property taxes are fairly high 2%+Also expect to pay points either way with a HML or conventional lender, the interest rate for conventional will be significantly lower.

I will be acquiring the property as a primary residence so hopefully I can find someone with a reasonable LTV and lower down payment.