The heating processes of private residential buildings demand substantial fuel and energy resources and contribute to global warming, necessitating the transition to energy-efficient and eco-friendly heating. This study aims to develop a methodological approach for selecting cost-optimal strategies for household heating systems by assessing the environmental impacts and cost-effectiveness of available options of fossil fuels and renewable energy used in the residential sector during a heating season while ensuring homes’ greening and energy efficiency. The research extends the existing methodology by considering climatic zones and their ambient air temperature fluctuations during a heating season, household energy efficiency, various energy carriers used for heating, household running and capital costs for heating, multi-zone electricity tariffs, and prospects of heating automation, aiding policymakers in shaping residential heating choices. Tested on a typical Ukrainian household, the approach contributes to sectoral policy improvement by creating energy-efficient and decarbonization strategies for housing stock, with potential application in other countries. The results show that the most cost-optimal options for heating in Ukraine are firewood and natural gas use under the current energy policy. Based on the findings, the study suggests recommendations within Ukraine’s regional context and carbon neutrality goals. They provide a transition to renewables (wood pellets and heat pumps) by developing a market infrastructure for servicing boiler equipment and logistics for biofuel supply, state economic support to local boiler equipment manufacturers, and partial reimbursement of investments in pellet boilers and heat pumps for households, electricity tariff adjustments, etc.