If you want to get by on the cheap as far as bodywork goes I would look into late models. Normally in better shape per dollar than musclecar era stuff, plus their suspension design is generally alot better. I bet you could build a sweet 3rd gen with a carb'd 5.3L and all the suspension bits for under your budget. IMO 17K is alot of money to be able to drop at once on a project car. I'd stick to a gen III motor out of a truck. The additional weight can be overcome with the money you'll save.
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Alex
65 Mustang-in progress
MII front suspension
5.3L with a T56
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