Connect SQL Server from SQL Developer

I searched through all threads on the web available, but none could help me.

I am trying to connect to SQL Server engine from SQL Developer. In order to do that I enabled Named Pipes and TCP/IP from SQL Configuration Manager.

Then I tried different drivers:

• I tried Microsoft JDBC driver for SQL Server - I cannot choose in connection manager SQL Server database type, so it does not work..
• I tried jTDS driver instead, and it worked - I can choose SQL Server database type, but then all I get is an error informing that it cannot connect to Microsoft SQL Server on localhost (I tried localhost, name of my computer, none of which worked).

Is there anything more I can do?

EDIT

This is what I have so far:

SECOND EDIT

I had more problems:

1. With error saying

   Status: Failur-I/O Error: SSO Failed: Native SSPI library not loaded. Check the java.library.path system property

2. Using windows authentication, I still got asked for username and password.

(All details and solutions in my answer below)

We only support the jTDS driver for SQL Server and Sybase ASE connections, so that's the way to go.

After that, it's up to you to get a correct connection string to your SQL Server system.

Make sure you have the right port in addition to your 'localhost' network location for your SQL Server instance.

This is using version 19.1 of SQL Developer to connect to a SQL2012 instance overseas..