I was really surprised by that when my friend bought his house. It's a sneaky way to get around the fact that the bank won't finance anything that's not secured by the house. So say you are buying a house for 200k, but after the down payment, you don't have the money to redo the kitchen like you wanted. No problem, the seller adds 3k to closing costs and hands you a check for 3k. Your bank hands you a check for 203k, You pay the seller, and suddenly you have 3k that your bank wouldn't finance directly to redo your kitchen.