We have no idea what clauses may be in your contract, force majure decisions/applicability in your local courts, etc. 

Pres Obama made a rule in which hundreds of thousands used to make investment decisions.

We don't require them to carry renter's insurance because I expect our tenants to be adults and make those decisions for themselves.

You are not making a 10 year decision as to where you are going to live.  

Finally made the decision to go for it and this was the it.

Risk is part of real estate investing, and sometimes the best looking deals end up being terrible decisions that injure our wallets and our pride.That said, the other side of your dilemma is the dream house.

They person you are talking to at the lender is not the person making the underwriting decision whether you get the loan or not.

I want to make sure our expectations are realistic and this is a well thought out decision for us.Thank you in advance to anyone who offers insight/advice/thoughts!

QUESTION #4 Would it be a smart decision for the tax purposes of losing our personal home deductions in our taxes compared to the benefit of depreciation and others tax benefits with the LLC.

Make all the decision.