home.php or frontpage (via settings) for theme?

  1. Simply put, the WordPress template hierarchy reserves home.php for the homepage, but if you set a Front Page post, it will display that instead. If WordPress core developers reserved it for the homepage, I do not believe it would cause issues with any servers, because they would be putting everyone at risk. Hope that explains it for you. 🙂

  2. It is completely personal preference.

From the WP Codex:

  1. WordPress first determines whether it has a static front page. If a
    static front page has been set, then WordPress loads that page
    according to the page template hierarchy.
  2. If a static front page has not been set, then WordPress looks for a
    template file called home.php and uses it to generate the requested
    page.
  3. If home.php is missing, WordPress looks for a file called index.php
    in the active theme’s directory, and uses that template to generate
    the page.

See the relevant WordPress Codex page for more information:
http://codex.wordpress.org/Template_Hierarchy

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