They can not be used as part of the deposit on the loan. Any loans which are marketed as having "no closing costs" usually have negative points embedded in them where the expense of stemming the loan is paid through a higher interest rate on the loan. This fee should be disclosed on your Loan Quote (LE) and Closing Disclosure (CD).

When you acquire negative points the bank is betting you are likely to pay the greater rate of interest for a prolonged time period. If you pay the higher rate of interest for the duration of the loan then the bank gets the winning end of the deal. Numerous people still take the deal though because we tend to mark down the future & over-value a lump sum in the present.

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