If a buyer has money to cover the closing costs and has a pre-approved 100% loan, what happens to the money enclosed with the offer and how is earnest money handled?

My thoughts were that the money with the offer would go toward the closing and then any closing costs left above that amount could be "prepaid" as earnest money.

Anything above pre-paying the full estimated closing closts as earnest money would effectively be putting a down payment on the loan, right?

Also, what information should the seller be asking about the 100% loan? Should they be concerned if it is through a national bank chain? For instance, should they be asking to know the specifics of the loan program or even to talk to the loan officer about the loan?

Thanks for any insight...