If youve got 7K your probably better off starting with a 4th gen LT1 or LS1. Im finding LT1 t56 cars for around 3500 in good clean condition, that leaves you 3500 for bolts on, suspension, and wheels and tires. Gives you a good handling 300whp car. Good shopping and you can probably fit a cam in there also.
Or you could just buy an LS1 car and maybe get some suspension mods in there, or a couple bolt ons.
The rears do blow up, but unless your dig racing a bunch they are fine. I broke 3 in 2 years, all happened while dig racing, and once I learned a little mechanical empathy and how to slip a clutch on a launch a little, I made it 6 years on another stock one with no problems. They normally die from really sticky tires (DRs and better) or wheel hop.
If you really want a 3rd gen, Id just swap it, but not to an LS, to a LT1, cause you can get a running t56 car for cheap enough, and just swap over all the drive train, and other stuff like disc brake rear, seats and whatever else swaps.
But a 3rd gen while probably end up being more expensive to make an equally nice car, because they are so close in price to an LT1 car for a nice one, or they are dumb cheap for a haggard one. then you have to spend more on interior and cleaning up the exterior etc.
Either way I like them both.
whatever you do, buy all your stuff used, both platforms have such a big following, NIB and used stuff is all over, no reason to pay for brand new stuff except for a few things like shocks. My money went way farther when I started searching the classifieds on various forums, and most of the time I could find what I was looking for right away or in a day or two.
LS1tech.com
Ltxtech.com
ls1lt1.com
thirdgen.org
frrax.com
camaroz28.com
and of course the bay