This study aims to examine northern Iraq (Dohuk Governorate), with a particular emphasis on optimizing energy consumption. The research focused on evaluating the effectiveness of polystyrene insulation in reducing thermal loads through energy modeling. To carry out the simulations, Design Builder software was utilized, incorporating the region’s specific climatic conditions into the analysis. This study aims to evaluate the effectiveness of existing thermal insulation systems in residential buildings and propose targeted improvements to enhance energy efficiency and indoor thermal comfort. The objective is to reduce energy consumption for space heating and cooling by optimizing the thermal performance of building envelopes using advanced modeling techniques. A thermal modeling approach was employed using simulation tools such as EnergyPlus and Therm to analyze heat transfer through walls, roofs, floors, windows, and thermal bridges. Key parameters—including U-values, R-values, thermal conductivity, and local climate data—were used to develop accurate models of residential structures. Baseline scenarios were compared with proposed retrofitting measures to assess their impact on energy demand and thermal stability. The simulation results revealed significant heat loss through poorly insulated walls and windows, with thermal bridges accounting for up to 15% of total heat loss. Implementing advanced insulation materials and breaking thermal bridges led to a 25–40% reduction in annual heating and cooling loads. Improved insulation also resulted in more stable indoor temperatures and better alignment with energy efficiency standards. The study introduces a comprehensive modeling-based framework that not only identifies weak insulation areas but also quantifies the benefits of specific improvements before implementation. Unlike traditional assessment methods, the approach integrates both envelope and thermal bridge analysis, enabling precision-driven retrofitting strategies. This work contributes to the development of sustainable building practices and supports informed decision-making in residential energy upgrades.