Water jacket rust on bare block

Additionally, it looks like there's some really tough corrosion at the bottom of some head bolt holes. I can knock out some with my pick but not all. My fear is that this corrosion will prevent the head bolts from torqueing correctly. Thoughts?

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To clean out the crud from the head bolt holes (and all holes tapped in the block) get the proper thread taps and chase them.... That will clean out any debris and make the threads true again... You may need to chase them two or three times to get them perfectly clean....

Then chase the threads of the bolts with the proper die to clean the threads off and make them true again...

When you are done chasing the holes with taps and the bolts with dies, you will be able to thread the bolts into the holes mostly by hand and only need a wrench to tighten them....

This thread shows you how to tap the holes in the block:

How to Rebuild a Small Block Part 5: Crankshaft Install


This is also a good one for you to look at before assembling:

How to Rebuild a Small Block Part 4: Pre Flight Inspection After Machine Shop Before Assembly


You may want to start off with the first one in the series and follow them in order.... I haven't gotten to do any more past short block assembly, but hope to soon... When I am done with the whole series, you will be able to follow them through and it will walk you through how to rebuild a small block engine by yourself, even if it's your first time....