Need advice 96 Merc

96 Mercury 40hp 4cyl 2 stroke, impeller stopped working engine overheating and now I got 110psi on all cylinders except for #3 75psi (thinking rings)I did a wet cylinder test and it went to 115psi, My question is should I attempt to rebuild this motor I've been working on motors since I was 13 but never to this extent I'm also on a fixed income so I really can't afford another motor or to have a outboard mechanic fix this motor.
Any advice would be very appreciated

I would rebuild the waterpump, and test the thermostats and poppit valve, test it and see how much power she has. If acceptable, run with it.

To repair it is not a lot more complicated than fixing a small engine, since it is 2 cycle. You will likely need to bore out the #3 cylinder and get a new oversize piston, and some gaskets for the powerhead and carbs.

So, drop the gearcase, pull the carbs, ignition, charging system and then the powerhead.

Open the crankcase, remove the cylinder head and pull out the crankshaft, rods and piston. Clean and measure the bores. Look for scratches in the #3 cylinder and see what oversize boring it needs to clean up. Buy the right piston and have a machine shop bore it.

Now clean up the block and install the pistons and crankshaft and cylinder head. Torque, in sequence, the crankcase and cylinder head bolts.

Rebuild and install the carbs, install the ignition components and the charging system components and time the engine.

Parts should cost $500 or less, if only repairing one cylinder. Alternatively, there are rebuilt powerheads avail. You might price one.

If oil injected, be sure to check that oil injection system while you have it apart.

This looks to be a "deadhead" engine. No cylinder head. It can be pretty hard to drop the 4 pistons and crank back into the block without the correct tools. It can be done, but it won't be easy.

Might want to get one of those cheap borescopes that connect to your phone and take a look at the cylinders thru the spark plug holes. Or maybe pull the transfer and exhaust covers and then you see some of the rings.