For local DNS home.arpa is I think what we're 'supposed' to use, but I use .lan
Only use another domain name if you actually have it registered, like myname.net or something. As a bonus you can then get a wildcard letsencrypt SSL cert for easy HTTPS.
Because of interference with existing domains. Say you set a computer on your network to mypc.google.com, that won't work because the DNS server will lookup google.com as an external domain.