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You buy it in the market district.
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According to the game guid the only place for sale is a dump at the port. I bought a home in LLewellyn. Nice place. You will spend as much money furnishing the place as it costs to buy if not more.
You remove a Oblivion Gate outside of a town and the Count and people of the town start loving you and it makes it easier to buy a house. This is where the Allies of Bruma quest comes in handy since your local Count wants the gates removed before sending help. Pick your town, get rid of Oblivion Gate, buy house. Some are very expensive.
Make sure you talk to Count or Countess before removing a gate. Sometimes there are more than one and you might remove the wrong one. Happened to me and I had to make a second trip to Oblivion.