Hope this is not a duplicate but it appears that the VisualEditor media option isn't too good at searching local files and instead focuses on the foreign file repo (such as MediaWiki Commons). This is happening on Miraheze but I also tested it out on the English Wikipedia (MW version 1.36.0-wmf.1 (rMW70b09c3a4025)) and couldn't find a file that was on EnWiki and not on commons without searching the precise title.