Andrew,
I've heard of a home renovation loan where the lender borrows more then the purchase amount. The interest rate is higher and you need to show where you're going to spend the money but it might be worth looking into. The other option is a lower percentage down but like you said the terms aren't as good. Are you dealing with a broker or a bank? If it's a bank you might want to get a second opinion from a loan officer who can shop multible lenders for you.
Michael Doyle Realtor

Many thanks for the great information. This is very useful and gives me some hope. I'll take your advice and see where it leaves me. My credit score is ok (735), not great.

Andrew,
As a fellow lover of historic homes, I feel your pain. As you know, the mortgage market is fairly tight right now. How is your credit rating? The higher your rating, the more likely you will be able to find a loan closer to your needs. $0 into rehab costs seems extreme even in this market--UNLESS you are looking at the true labor of love of rehabbing a tear-down (not usually a sound financial decision--but sometimes done for sentimental reasons). In that case, no one will give you rehab $ because the LTV ratio is already well below par, even with a large down payment. Seek out a REALTOR who regularly deals in historic houses and/or neighborhoods in your area. He/she can probably provide a list of more historic-friendly lenders. Keep shopping until you find FAIR terms, which should ideally include some rehab cash (usually held in escrow). At worst, lower your down to cover the repairs yourself.

Lastly, don't forget to factor in the cost of home owner's insurance when figuring out your monthly budget. Some companies charge a premium on historic homes, others treat them like any other house with similar construction. Again, a local REALTOR can help you here. Best wishes and happy hunting!