This is what saved me, i just wanted to return here and thank you for your comment i was stressing pretty hard thinking i was going to be driving over an hour to my closest apple store to fix this thing.
One thing I will add to your instructions for what I had to do is once the phone is in recovery mode and connected to the macbook, I used the Apple Configurator app which showed my iphone, I selected it then clicked update at the top which then said that the iphone is not booted so it gave me the option to erase and reinstall IOS which I proceeded with. It took a while to download IOS but when it was finished it said my macbook needed to be updated to latest IOS first which I did. After that i had to reconnect phone in recovery mode since macbook rebooted for update, luckily i got back into the phone and was able to proceed with the erase and reinstall of IOS.
After doing some reading from other peoples posts it seems the issue is when you setup the new iphone if you select direct transfer if your old iphone and new iphone are on different IOS's it seems to hose up the new one.
So my second time around doing the setup i selected icloud backup which worked flawlessly, i hope this can help some others out there, i was extremely disappointed never had this much trouble setting up a new iphone and was so worried i received a dud.