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Or searching the underground jungle for a shrine chest containing a boomstick. But those three methods are the simplest way to get the Arms Dealer NPC to spawn.
The only other way to do it before hardmode is to kill Skeletron and then search the dungeon until you find a handgun, but that method very difficult and most certainly not recomended.
Any NPC can live in any kind of housing, though if you like, you can build the NPC a special kind of themed home. It isn't at all necessary to build unique housing for every NPC, however, and even a simple mud hut will do the trick if it's got a table, a chair, and 4 empty spaces of flooring.
The only time I'd recommend digging for treasure and ores is if you have a good supply of spelunking potions. It would be better to go exploring existing caves and the surface for ores like lead/iron.
Once you have lead/iron armor and bow, I'd recommend making some fire arrows. Then build an arena and farm EoC for demonite/crimtane. If you have shurikens, use that during the first phase with EoC.
Better to use rope than dirt as it gives you a bit of maneuverability with the harpies.