They can not be used as part of the down payment on the loan. Any loans which are advertised as having "no closing expenses" generally have unfavorable points embedded in them where the expense of stemming the loan is paid through a greater interest rate on the loan. This charge should be disclosed on your Loan Price Quote (LE) and Closing Disclosure (CD).

When you acquire unfavorable points the bank is wagering you are most likely to pay the higher interest rate for an extended amount of time. If you pay the higher interest rate for the duration of the loan then the bank gets the winning end of the deal. Lots of people still take the offer however because we tend to discount the future & over-value a lump sum in the present.

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